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One year suspension of estate tax may require immediate action.
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Under current law, beginning
January 1, 2010 there is no federal estate or generation skipping tax
(GST). Instead there is a set of complicated carryover basis rules
which carry with it reporting to the IRS for “large transfers”. There
would be no step up in basis at date of death as we currently have but
rather, basis would remain the same as it was in the hands of the
deceased, with some exceptions. The most notable exceptions are the
$1.3 Million in basis that can be allocated to assets plus $3 Million
more in basis for assets transferring to a spouse.
For deaths
January 1, 2011 and after the rules will revert to the pre-2001 state.
There is an estate tax exemption covering estates and GST up to $1
million in assets and a top tax bracket of 55%. The gift tax exemption
will also be $1 Million.
Congress has attempted to freeze, fix
or otherwise eliminate the uncertainty that we now face Suggesting a
permanent estate tax exemption of $3,500,000 will be instituted.
Unfortunately, other matters such as health care and the economy took
precedent and the promised “fix” has not happened. So what if anything
do we do now?
One matter of urgency is the review of your will
and trust to evaluate the impact of the formula clause that has
traditionally been used to control the distribution of assets to sub
trusts such as the Credit Shelter trust or the Marital trust. These are
often referred to as the A and B trust. Since the formula used in many
trust referred to the Unified Credit amount under the law and that
amount has now been repealed, estates of decedents dying in 2010 could
have an undesirable allocation of the estate with all of the assets
transferring to the Marital Trust. As a result the taxable estate of
the surviving spouse could end up exceeding future estate tax exclusion
allowances resulting in a heavy tax burden that could have been
avoided.
While the topic is complex the solution is not. We
urge readers to review their estate documents with legal counsel and
consider an amendment or disclaimer that would permit the funding of
the Family or a trust portion of your estate.
For further information please contact Dave Gaino, dgaino@applegrowth.com or Robin Riemenschneider, rriemenschneider@applegrowth.com.
Dave Gaino, CPA, MTax, PFP
Chairman
Robin Riemenschneider, CPA, CFP
Principal
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