NEW ESTATE & GIFT TAX LAWS New Laws Create Enormous Estate Planning Opportunities For The Wealthy
|NEW ESTATE & GIFT TAX LAWS
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 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”).
A provision such as this could result in the surviving spouse being disinherited.
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.
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).
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.
Please contact us at your earliest convenience to review the potential impact of the current legislation on your estate plan.
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