Arizona Estate Planning Lawyers

Estate Planning - Overview of the 2010 Tax Relief Act (Estate & Gift Taxes)

On December 6, 2010, President Obama announced an agreement with Republican law makers to extend the Bush tax cuts, including dealing with the pending Estate tax problem. The Senate then passed H.R. 4853, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“2010 Tax Relief Act”), by a vote of 81-19. The House subsequently passed the 2010 Tax Relief Act on December 17, 2010. Below is a brief summary of how the new 2010 Tax Relief Act may affect your estate plan.

First and foremost the 2010 Tax Relief Act reinstated the estate tax and generation skipping tax “GST”. Additionally the 2010 Tax Relief Act reduced the top estate, gift and GST tax rates, reunified the estate and gift tax laws, and allows for estate tax exemption portability between married spouses. Congress has merely put a band aid on the estate tax problem however, as all these new laws expire on December 31, 2013.

2011-2012 Estate and GST Tax Laws:

• $5 Million estate and GST tax exemption;
• Estate tax exemption is portable between married spouses ($10 million exemption per couple);
• 35% top estate, gift and GST tax rate;
• Reunification of estate and gift tax laws ($5 Million gift tax exemption);
• The 2010 Tax Relief Act expires on December 31, 2012 (the next national election year).

Estate and GST Tax Laws 2013 and beyond:

• $1 Million estate and GST tax exemption;
• $2 Million exemption (per couple with proper estate planning);
• Estate tax exemption will no longer be portable between spouses;
• 55% top estate, gift and GST tax rate;
• Unified estate and gift tax laws (1.0 Million gift tax exemption);
• Subject to future changes by Congress.

Although there are many potential problems with the new tax laws, which are still being studied by estate planning practitioners, it’s clear that the next two years may be a unique window of opportunity for gift and estate tax planning.

Additionally, the need for proper estate planning, including Trusts, is still as strong as ever. There are many reasons to continue using bypass/credit shelter trusts for many non-tax purposes, such as family protection, creditor protection in addition to avoid having to file a 706 tax return to capture the tax exemption portability. Finally, it is important to stress that these higher gift, estate and GST exemptions and lower tax rates may not be here in 2013.

If you have any questions regarding family based estate planning or any other legal issues, please do not hesitate to call the attorneys at Rowley Chapman Barney & Buntrock, Ltd. (480) 833-1113. Kenneth C. Barney is the firm's lead Arizona estate planning attorney and a partner with the firm.