Estate Planning

Here is a brief answer to a question someone had about the current status of the Estate Tax:

On 1/1/2010 a funny thing happened that we all knew about but thought it would get changed before actually coming to fruition.  As of 1/1/10, the estate tax is repealed (that means 0% estate tax for anyone who dies now), the gift tax went down to 35% and the generation skipping tax was also repealed.  One caveat, upon a person's death, the inheritor receives the assets at the original cost so when the inheritor sells, she will have to pay capital gains on the sale.  There is an exemption amount but I'm not going to get into that here as it isn't really that important.

All of the above is only in effect for 2010.  On 1/1/2011, we revert back to a 55% estate tax/gift tax, a 1 million dollar exemption and the  generation skipping tax returns at 55%.

Congress has been working on a bill to make permanent the estate law changes enacted in the 2001 Tax Act, however they have been unable to do so as of this writing.  The worry is, if they do come up with permanent estate tax relief, will they make the changes retroactive, thereby nullifying any action people took during this time?  No one knows--it is a huge mess.

What many people with wealth are considering is GIFTING of assets and paying the tax at the 35% rate.  If permanent changes occur and made retroactive, I am sure there will be masses of people who will challenge the constitutionality of such a decision.  But in the worst case scenario, the person who gifted would end up paying the new gift tax rate (what ever that may be).