by John T. Anderson, Chairman
Certified Specialist in Estate Planning, Trust
and Probate Law by the State Bar of California,
Board of Legal Specialization
Several changes to be aware of under the new tax law signed by the President on December 17, 2010:
1. We are in a more complicated planning situation than we were in 2009/2010. Until December 17, 2010, we still were looking forward to a New Year with a $1 million estate tax exemption and a 55% tax rate. NOW we have postponed that threat to January 1, 2013, so keep that in mind. It is still possible that your planning clients will be alive and will face a 55% tax with a limited $1 million estate tax exemption.
2. Okay, for 2010 there was no estate tax, but we have to deal with a modified step-up in basis or carry-over basis, right? Well, not necessarily. With the December signing we also received the option for anyone who died in 2010 to subject the estate to the 2011 law ($5 million exemption/35% tax/FULL STEP-UP IN BASIS). Or, the extremely wealthy could elect, on a death in 2010, to have no estate tax but limited step-up in basis for capital gains. For 2010, you must file the proper tax forms to allocate the modified step-up/carryover basis to assets. $3 million for spouse and $1.3 million for everyone else; or, you can use the $5 million exemption and take a full step-up in basis. For anyone with $5 million or less and a 2010 death, it appears to be a given.
3. For 2011/2012 there is to be a $5 million exemption, full step-up in basis and a top tax rate for estate tax of 35%. In light of the possibility of a return to $1 million exemption in 2013 there is still a substantial reason to use A/B and A/B/C Trusts or variations with disclaimers. (See #4 below).
4. “Portability of Exemption” is a concept to learn. You must file a 706 to get this, but any unused portion of the estate tax exemption by the “first to die” spouse can pass to the surviving spouse. So, in a typical situation where the estate is passed from the first to die to the survivor, there may be no estate tax, but with a filing, the surviving spouse would receive the decedent’s $5 million exemption added to their own. But, unless both spouses pass away in 2011/2012, you might have the first spouse’s $5 million, but the survivor might only have $1 million of their own in 2013; or, maybe we won’t even have the first to die exemption after 2012.
5. The annual gift tax exemption is still $13,000, but the Gift Tax lifetime exemption and GSTT exemption are $5 million for 2011/2012. This opens huge doors for gifting appreciating assets or to get discounts on valuations at death, ownership interests in assets. Multi-generational transfers should be considered at this time.
Many clients will think they are in pretty good shape with the new exemption, but the door for greater planning as well as the need to do so, could not be more necessary.
Mark your calendar for the upcoming Long Beach Trust, Estate Planning and Probate Brown Bag Luncheon:
Thursday, April 28, 2011, Michael Trainotti, Esq., will be sharing his thoughts on Estate Tax and Related Tax Law Changes for 2011-2012 (and 2010?) In addition, Judge Paul will give special recognition to those who have so faithfully given of their time and expertise to volunteer for the Pro Per Guardianship Panel.
We meet at the Long Beach Superior Court in Dept. G (on the 5th floor). There is no charge for the meeting.
John T. Anderson, Section Chair
Certified Specialist in Probate, Trust and Estate Planning
by the California State Bar Board of Legal Specialization