The passage last week of the bipartisan tax bill has many people breathing a huge sigh of relief. Not only is the tax uncertainty at an end, but the end result is beneficial to just about all American taxpayers, regardless of your wealth or the size of your estate. According to The Wall Street Journal, “the deal left in place many tax rates that otherwise could have jumped significantly, and [it] lowers the payroll tax for all workers by two percentage points… most individual taxpayers should come out ahead.”

The highlights of the tax bill include:

New Estate Tax Exemptions and Rates: The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate. Although it’s not quite the death of the estate tax, the exemption amount is high enough to leave most families in the clear.

Tax Election for 2010 Estates: One of the most important parts of the new bill, tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules. This is good news for heirs! According to 2010 law, heirs of decedents who died in 2010 will be taxed when they sell their inherited assets based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death; which means that the taxes paid are generally higher on estates of decedents who died in 2010 than in 2009 or 2011. Tax election allows heirs to choose the more friendly 2011 tax rules.

Unification of the Estate, Gift, and Generation-Skipping Taxes: In recent years the exemptions for the three levies have been out of sync with each other, making succession planning difficult for family businesses and other matters. The unification of all three makes giving gifts to grandchildren much easier than it used to be.

Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.

With all this good news, does this mean we’ve done away with the need for estate planning? Not at all!

First of all, there is still the matter of state estate taxes to consider. As this article in Forbes reminds us, “21 states and Washington, D.C., have state estate or inheritance taxes in place for 2011.” California does not currently have a state or inheritance tax independent of the Federal estate tax, but if you have family or friends in other states—or if you are considering a move—you may want to arrange a consultation with our office.

Secondly, the recent fluctuation of the law means that your current plan may be dangerously out of date. Call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any old clauses that could negatively affect your heirs.

But most importantly, estate planning is not just about planning for taxes, it’s about taking control of your assets and leaving a legacy for your loved ones. Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is still essential—regardless of the changing estate tax laws.

Post a Reply