Estate Tax Laws Have Changed for 2010 & 2011

Minimize Taxes For Your Beneficiaries.

Many people feel they do not need a will because their taxable estate does not exceed the amount allowed to pass free of federal estate tax. These assumptions, however, should be reviewed given the current state of change in the federal estate tax laws. The federal estate tax laws in 2009, 2010 and 2011 are vastly different, for the moment and, therefore, it is important to have your will reviewed and updated as necessary this year.

Most wills were written with the existence of a federal estate tax. However, due to a loophole in the law, both the federal estate tax and the generation skipping transfer tax were repealed at the end of 2009, leaving 2010 without either of these taxes. There is still the gift tax, with the exemption of $1,000,000 during your lifetime, but the tax rate is reduced to 35% in 2010. (In 2009, this rate was 45% and 2011, it will increase to 55%.

For both years, the gift tax exemption remains at $1,000,000.) The federal estate and generation skipping transfer taxes, however, are both scheduled to return in 2011 at much less favorable rates than seen in the past 10 years.

In 2011, the estate tax exemption amount will be $1,000,000 with a tax rate of 55% on the remaining estate.

This compares to the 2009 exemption amount of $3,500,000 with a tax rate of 45%.

Many professionals believe that Congress may retroactively reestablish the 2009 estate tax structure for 2010.

This, however, remains to be seen. Having your will reviewed during these changing times is important as the tax consequences have changed and unanticipated taxes could arise. (For instance, inherited assets subject to capital gain taxes.)

Further, your taxable estate may be larger than you think.

For example, life insurance, qualified retirement plan benefits and IRAs typically pass outside of a will or of estate administration. But retirement plan benefits and IRAs (and sometimes life insurance) are still part of your federal estate and can cause your estate to go over the threshold amount.

Also, in some states, the estate or inheritance tax differs from the federal laws. A properly prepared will is necessary to implement estate tax reduction strategies.

Tip: Changes in the estate tax laws and in the size of your estate may warrant a re-examination of your estate plan.

Precise Tax & Accounting, LLC Contact me at (845) 649-7487 for contact information for Precise Tax & Accounting,LLC

February 15, 2010 · Jennifer · 5 Comments
Tags: , , , , , , ,  · Posted in: Estate Taxes, TAXES

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