Estate Tax for 2010, 2011 and 2012 Is Finally Settled
By Shane Flait © 2011

Finalization of our estate, gift and generation skipping tax took place on Dec. 17, 2010 when the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was enacted. Its provisions settle our death-related taxes from 2010 to the end of 2012 – but not beyond that.  Here are the provisions…     

Years 2011 and 2012

For 2011 and 2012, the first $5 million of your estate is exempt from federal estate tax. Any thing above that is taxed at a rate of 35%.

Both the federal gift tax and generation-skipping tax also have an exemption of $5 million each with excess subject to a 35% tax rate.

A new ’portability tax exemption’ applies to the estate tax. This simply means that the unused exemption of the first spouse to die can be added to the exemption of the second spouse to die. So if the first-to-die spouse uses only $2 million of his $5 million exemption, his wife can add his remaining $3 million exemption to her $5 million exemption when she dies for an $8 million exemption.

Of course this is true if they both die during the next two years! After that, who knows… 

Up until now bypass trust were created to shelter some of the estate by making sure the estate tax exemption amount of the first spouse to die was not wasted since there was no ‘portability examption’.  So it initially appears that this estate tax exemption purpose of the bypass trust isn’t necessary. But, of courses, the bypass trust also has other purposes such as protecting children of an earlier marriage, and more…

Year 2010

If you died in 2010, you can now opt to be taxed in one of two ways.  Year 2010 was supposed to have an unlimited estate tax exemption. You can choose to use this but your estate is subjected to a carry-over basis, as used for gift giving, for 2010 – not stepped up to fair market basis. So you need to consider if you’re dumping a lot of future capital gain taxes on your heirs.

Otherwise, you can opt for the $5 million exemption and use the typical stepped up to fair market basis on the date of your death. 

State Estate/Inheritance Taxes

There’s probably no change in your state death taxes so you’ll have to make sure you consolidate your estate plan ‘wording’ and actions to accommodate them in any changes you make in your federal estate tax planning. 

The Future?

Of course, 2 years is a pretty short time and estate planning really needs to bridge many years. So what will happen after the 2012? It appears that all will revert to what we were scheduled to have for 2011.  But then again, it may allow some members of congress to make a new bid to get rid of estate taxes altogether.  

It’s a shame that the government can dangle a tax that can rob so much of an inheritance on almost a year-to-year basis. You’d think they owned your wealth.

 

 

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com