SS+D FINANCIAL NEWS AND INFORMATION

March 19, 2010

ESTATE TAX UNCERTAINTY PROVIDES PLANNING OPPORTUNITY

There is no federal estate tax in 2010.  Although we have had nearly a decade of people joking about pulling the plug on Grandma in 2010, most are still surprised that Congress has failed to act, allowing the year of no estate tax to arrive.  Many believe Congress will attempt to pass a retroactive bill before the end of 2010.  Whether such a bill will pass, and whether it will survive a constitutional challenge, is anybody’s guess.

While there are currently no federal estate or generation skipping (GST) taxes, there is still a gift tax of 35%.  And along with estate tax repeal, Congress eliminated the automatic income tax basis step-up on the death of an individual.  While there are some exemptions to the elimination of basis step-up, many people dying in 2010 are actually worse off than they would have been had they died back in 2009 when there was an estate tax.

Unless Congress changes the law, federal estate, GST, and gift tax laws will be reinstated on January 1, 2011 to match the laws that existed on January 1, 2001.  This means the estate, GST, and gift tax exemptions would be back down from $3.5M (in 2009) to $1M, indexed for inflation since 2001.

We recommend that estate plans be reviewed now to be certain that they still work and that they best anticipate future possibilities.  For couples with assets of $1M or more, we believe traditional marital/credit shelter trust planning is still needed in order to protect assets of the first spouse to die from later taxation.  A properly drafted trust will allow couples to eliminate estate taxes for a spouse dying this year, and also exclude such assets from taxation on the later death of the surviving spouse.  A trust can also provide the spouse with the use of trust assets while protecting them from creditors.

It is a mistake to pass up estate planning opportunities just because the current law is unsettled.  To talk about your own estate plan, call Mike Moloney at (937) 222-2055.