New Laws Create Enormous Estate Planning Opportunities For The Wealthy
The "Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010" (the "Act") significantly changes federal
tax laws regarding estate taxes, gift taxes and generation-skipping transfer taxes. As a result, there are numerous changes
that may be required to your estate plans and your Wills. There are also numerous estate planning opportunities you should
consider. This memo highlights the changes and makes important planning suggestions as follows:
PLANNING FOR 2011 AND 2012.
For 2011 and 2012 the gift tax exemption is reunified with
the estate tax exemption at $5 million. This is a dramatic increase from the $1,000,000 gift tax exemption in 2010. The maximum gift tax rate remains at 35%.
PLANNING SUGGESTION: This is a great opportunity to make additional gifts if you
have already used your $1,000,000 exemption. In addition, there is no New York or
New Jersey gift tax, so a true tax-free transfer can be made. Since many states are
suffering economically, there is a possibility that some states, including New York
and/or New Jersey, may reinstitute their gift taxes. It therefore would be prudent to
take advantage of the higher gift tax exemption sooner rather than wait and be subject
to a potential gift tax as a result of a change in the law after 2012.
For wealthy clients who have estates significantly in excess of $10,000,000, using the
$5,000,000 gift and GST exemptions now can create huge opportunities when selling
assets such as commercial real estate or closely held business to an Intentionally
Defective Grantor Trust ("IDGT").
WARNING: For individuals whose estates are less than $10,000,000 it is critical to review
Will provisions. Many Wills have been drafted to leave the exemption amount directly to
children. A provision such as this could result in the surviving spouse being
disinherited. Please review your plan to make sure your estate planning documents and
asset structure match your objectives.
INDIVIDUALS WHO DIE IN 2011 OR 2012.
There is now a generous $5,000,000 federal
exemption with a 35% maximum estate tax rate on the excess. In addition, for 2011 and
2012 a surviving spouse can use the unused portion of the estate tax exemption of his or her
deceased spouse. This is referred to as the "portability" provision. The deceased spouse’s
executor must file an estate tax return (even if not otherwise required to do so) and make the
appropriate election to carry forward the exemption. Some may think the portability provision
makes a "credit shelter trust" obsolete. However, this is not necessarily the case. It depends
on the State estate tax. If a "state credit shelter" trust is not created on the death of the first
spouse, there may be an unnecessary State estate tax payable on the death of the survivor.
The use of a "credit shelter trust" will also preserve the generation-skipping transfer tax
("GST tax") exemption of the first spouse to die, since the GST exemption is not portable.
PLANNING SUGGESTION: Meet with your estate planning attorney to determine
whether your existing Will needs changing as a result of the new law and if a
segregated State Credit Shelter Trust is appropriate.
For 2011 and 2012 the GST tax exemption has also increased to
$5,000,000, with a maximum tax rate of 35%.
PLANNING SUGGESTION: Careful use of the $5,000,000 GST exemption in 2011 and
2012 can result in passing significant assets to the grandchildren and more remote
generations without any federal transfer taxes. Consider creating a trust in a jurisdiction
such as Delaware that does not have a perpetuities statute (ie. trusts can go on forever).
NO CHANGES TO GRAT RULES OR VALUATION DISCOUNTS.
Significantly, the Act
does not contain any provisions requiring a minimum term for grantor retained annuity trusts
("GRATs"). Therefore, short term GRATs continue to be a valuable estate planning tool. In
addition, there are no provisions eliminating or curtailing valuation discounts for gift and
estate tax purposes, so these continue to be an important component of estate plans.
However, there are proposals that would require a GRAT have a minimum term of 10 years.
The high gift and GST exemptions present significant estate planning opportunities,
especially in the current economic environment where asset values and interest rates are
very low. It should be noted that these changes apply only through December 31, 2012, and
absent further legislation the law will revert to pre-2001 rates. Once again uncertainty reigns
and it is recommended that you take advantage of these tremendous opportunities now.
Credit Shelter Trusts continue to provide significant benefits.
Clients with substantial wealth should consider using lifetime gifts to take advantage of the $5,000,000 gift tax exemption before it expires ($10,000,000 for a married couple).
For estates under $5,000,000, credit shelter trusts created under older Wills may unintentionally disinherit the surviving spouse.
Implementing GRATs and sales to Intentionally Defective Grantor Trusts continue to be great planning techniques and can be enhanced under the new laws.
Create Delaware Trusts to avoid transfer taxes in perpetuity.
Please contact us at your earliest convenience to review the potential impact of the current legislation on your estate plan.
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If you have any questions regarding this matter or any other estate planning techniques, please contact a Maurice Kassimir & Associates, P.C. Trusts & Estates attorney or e-mail us:
Providing sophisticated estate planning to insure the accumulation, preservation and transfer of wealth for clients in the New York Metro area.