Many of us spent our childhood years playing sports and games. An important part of our development was learning the rules. Once we understood the rules, we could develop creative strategies for winning. When the rules changed, our strategies needed to adapt. Estate planning is no different. Late in 2010, President Obama signed into law changes to estate and gift tax rules. If you haven’t already, it’s important to review the new rules and make adjustments to existing estate planning and gifting strategies. Here are a few of the changes that may affect your plans:
• Estate Taxes Reinstated
In 2010, for a single year, there was no estate tax. During 2011 and 2012, the top estate tax rate will be 35%, and the estate tax exemption amount will be $5 million, as shown in the table below. In 2013, these temporary changes will end, and we may see a return to higher estate tax rates and lower exemption amounts.
Estate Tax Exemption Amount | Is Exemption Portable? | Top Estate Tax Rate | GST Tax Exemption Amount | |
| 2010 | N/A | N/A | 0% | N/A |
| 2011-12 | $5 million | Yes | 35% | $5 million |
| 2013 | $1 million | No | 55% | $1 million |
• Generation-Skipping Transfer Tax Repealed
Generation-Skipping Transfers (GST) allow one person to reassign ownership of assets to another person who is two or more generations younger. For example, a grandparent might transfer ownership of property, by gift or at death, to a grandchild. Historically, GSTs have been taxed at the highest estate tax rate. However, for 2010, the GST tax was temporarily repealed. As a result, gifts made to grandchildren during 2010 were assessed gift tax and not GST tax.
The GST tax returned in 2011 with the top rate at 35%. Executors of estates for those who died during 2010 chose between the estate tax rules for 2010 and those for 2011 by filing an estate tax return within nine months of the new law’s enactment.
• Gift Tax Exemption Increased
The new law temporarily increases the lifetime gift tax exemption from $1 million to $5 million. For example, with proper planning, a married couple can gift up to $10 million to future generations completely free of gift, GST, or estate taxes through 2012. This creates an opportunity for tax-free transfers of wealth that has not existed before.
• Estate Tax Exemptions Become Portable
In the past, estate tax exemptions that were not used were lost. The new law makes the $5 million exemption portable through 2012. In other words, an executor can preserve any portion of unused estate tax exemptions for the surviving spouse by filing an estate tax return. As the law is currently written, portability will disappear in 2013.
The new and temporary estate tax laws provide an opportunity to develop new plays for the 2011 and 2012 estate planning playbooks. If you would like to explore these opportunities, please call us at (318) 442-4944 or (866) 442-4944. We will be happy to work with you and your estate planning attorney or refer you to an estate planning attorney.
The Financial Consultants of Upton, Draughon & Bollinger are registered representatives with, and Securities offered through LPL Financial, Member FINRA/SIPC 207 Ansley Blvd., Suite A, Alexandria, LA 71303, (318) 442-4944.
