News & Education

Wealth Planning Update

On December 17, 2010, President Obama signed “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (the “Tax Relief Act of 2010”).  Among the many changes in this new law are the following provisions which will impact estate planning through 2012.

• Retroactive Estate Tax-2010.  For decedents who died in 2010, the federal estate tax was re-enacted and applied retroactively to January 1, 2010.  The exemption was increased to $5 million and the tax rate was lowered to 35 percent. However, the executor may elect to apply the carryover basis system which was in place during 2010 instead of the estate tax.
• Portability.  In 2011 and 2012, the federal estate tax exemption will be $5 million and will be “portable” between spouses.  Any exemption not used when the first spouse dies may be used by the surviving spouse.  For example, if the first spouse dies in 2011 and uses only $1 million of his or her available $5 million exemption, the remaining $4 million of exemption may be used by the surviving spouse and added to that spouse’s $5 million of exemption.  Portability only applies to gifts made or persons dying on or after January 1, 2011, and only with respect to previously deceased spouses who die on or after January 1, 2011.
• Gift Tax Exemption.  The gift tax exemption was $1 million for 2010.  In 2011 and 2012 it increases to $5 million per person.
• GST Rates and Exemption.  For 2010 through 2012, the generation-skipping transfer (“GST”) tax exemption increases to $5 million.  For 2010, the GST tax rate is 0 percent; for 2011 and 2012, the GST tax rate is 35 percent.
• Tax-Free Distributions From IRAs for Charity.  In 2010 and 2011, as in the past, an individual over age 70 ½ may have up to $100,000 per year paid from his or her IRA to qualified charitable organizations without having to report the amount as income.  IRA owners can use these distributions to satisfy their required minimum distribution requirements.

These changes are dramatic and will change estate planning for at least the next two (2) years.  The Tax Relief Act of 2010 expires December 31, 2012.  Unless Congress acts to extend the new law, these favorable changes may be temporary.

WHAT TO DO

This update provides only general information about the new law.  Please do not rely on this update as legal advice for your particular situation.  You should consult with a lawyer or tax advisor to learn how this law may impact your estate.  We at DeWitt Ross & Stevens S.C. welcome the opportunity to assist you with more detailed information and recommendations tailored to your family’s circumstances. Contact us at (608) 255-8891 or (262) 754-2840.