Estate Planning | Making a Difference One Family at a Time

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The new tax bill that was signed into law by the president on December 17th has brought some exciting new changes along with it. That is, exciting for the estate planning community, but perhaps not so much so for the IRS.

To recap the headline news, the estate tax, which had been repealed for the 2010 calendar year, was scheduled to return in 2011. The exclusion amount was set to be $1 million, and the top rate of taxation was scheduled to come in at a whopping 55%. The reason why these numbers were so disturbing to many is because of how they varied from the 2009 figures that were used the last time that the estate tax was in effect. In 2009 the estate tax exclusion was $3.5 million, and the top rate of taxation was 45%.

After a good bit of wrangling on Capitol Hill, the tax relief bill was in fact passed in the middle of December 2010. The most dramatic impact that it had on the estate tax was that it raised the exclusion up to $5 million per person and reduced the max rate of taxation to 35%.

However, there was another little goodie included in the tax package as it was passing through Congress that may be overlooked by some people.

Married couples enjoy an unlimited estate and gift tax exemption with regard to transfers made between one another, and this element of the tax code has not been changed. The goodie lies in the portability of the estate tax exclusion.

Previous to these new changes in the tax law, when a person died any portion of his or her estate tax exclusion that had gone unused perished along with this individual. But due to a provision in the new law, the exclusion has become portable between married couples. So now if a husband was to die without using any of his five million-dollar lifetime estate tax exclusion, his surviving spouse could then add that amount to her exclusion. This eliminates the need for bypass trusts to address this problem so this positive change will streamline many estate plans.

Barry D. Horowitz, Estate Planning Attorney
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