Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Estate and Gift – Facts to Know

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was passed.  Under this law, estates valued at $5 million or less are exempt from tax.  This law is in effect for tax year 2011.  Estates that are valued over $5 million are taxed at a 35 percent rate.

What does this law mean for married couples?  It means that with proper planning – a married couple can have an estate valued at $10,000,000 with no federal estate imposed on them.  This revision is a welcome change from previous limits and rates.  The gift tax rules have changed a great deal.

In prior years, the lifetime gift tax exclusion amount was $1,000,000.  This meant that a husband and wife could each give that amount to their heirs with no gift tax.  With the passing of the new law the lifetime exclusion amount has been increased to $5,000,000.  The result of this would be that a married couple could gift up to $10,000,000 with no gift tax.  It is important that all options are considered as this may not be the best way to transfer your wealth.  Options to consider are there are many different trusts that may be suitable to your situation.  It is of note that once your exclusion is used in a gift it is no longer available to your estate.

When planning your gifting strategy it is important that you consider or determine which assets will or most likely increase in value.  An asset that has been depreciated due to the economic down turn such as housing or commercial property may give you an added benefit of future appreciation.

The issue of state estate tax is another factor that must be clearly understood.  Depending upon state law some estates may be taxed under state law but not under federal tax laws.

The annual gifting exclusion amount for 2011 has remained at $13,000. 

The current tax law is currently scheduled to go back to previous rates and limits beginning in 2013.

From a tax planning standpoint it is very important that you are aware of the different options or strategies available to you. 

Danette Hefty, EA