2010 was a very interesting year for people who are involved in the field of estate planning due to the uncertainty that existed with regard to the estate tax parameters. The estate tax was repealed for 2010, but when it was last effect in 2009 the top rate of the tax was 45% and the estate tax exclusion was $3.5 million. Upon the sunset of the Bush era tax cuts that was to take place at the end of the 2010 calendar year, the exclusion was going to revert back to the 2002 level of just $1 million, and the rate of the tax was scheduled to go up to 55%, which is what it was in 2001.
Due to the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the Bush tax cuts were extended and there were also provisions included that had a profound effect on estate planning. The rate of the estate tax is now 35%, and the estate tax exclusion is set at $5 million for each individual. The generation skipping transfer tax and the gift tax also carry a 35% rate and a $5 million exemption as a result of the passage of this legislation.
When you are digesting all this information it is important to keep something in mind: these changes are not permanent. In the same manner that there was a lot of debating and hand wringing going on at the end of 2010, we will see the same kind of thing as 2012 winds down because this new tax act will sunset at the end of that year. So when you are planning your estate in light of the current playing field you would do well to recognize the fact that the goalposts may be moved once again in less than two years. This continued uncertainty makes it all the more important to engage the services of an experienced estate planning attorney to guide you through these ever shifting waters.