Federal Estate Tax
Is it fixed? President Obama extended the Bush era tax cuts and signed the new tax bill in December 2010 establishing a 5 million dollar Federal Estate Tax Exemption with a 35% rate for estates over that amount. A stepped up basis for appreciated property to eliminate capital gains on inherited assets has also been reinstated.
A great feature of the bill for high net worth individuals is the fact that the Federal Estate Tax Exemption will now be portable. That means if one spouse dies, the unused portion of the Federal Estate Tax Exemption for the deceased spouse will be credited to the surviving spouse. Setting up Trusts to reduce the estate tax then becomes less attractive for estates of 10 million or less. In our practice, we like to use joint trusts for estates that are not subject to the Federal Estate Tax as it is easier for the family to manage one trust rather than two.
The lifetime gift tax exemption will rise to $5,000,000. This will be done by integrating the gift and estate taxes in place before 2004. The annual gift tax exemption is $13,000 per person per year currently. Gifts made in any year to one person of more than $13,000 are deducted from the $5,000,000 lifetime gift tax exemption. The gift tax is not an issue for most people who will never be near the lifetime exemption of $5,000,000.
For personal income taxes, the top 35% tax rate will continue for high income individuals through 2012. We can expect to see the posturing and delays begin again when the tax provisions are set to expire in 2012-- right around election time!
