January 20, 2011
As 2011 progresses, we have received clarification from the federal government on the applicability of the new estate tax law for deaths occurring during the year 2010, and new estate tax law for deaths occurring in 2011 and 2012.
The new Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010 (TRA) modifies the estate tax for the years 2010, 2011, and 2012. Specifically, it puts in place an estate tax system for those who died in the 2010 tax year which allows for the election of the rules under the previous Economic Growth and Tax Relief Reconciliation Act of 2001, or to allow a new estate tax law to apply. Therefore, where that person died in 2010, that deceased person’s estate or trust may have the right to choose if the old law or new law applies to his or her estate.
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This is a unique opportunity for the fiduciaries of estates and trusts of decedents who died in 2010, to elect to follow the law which is most beneficial to their estate or trust. Normally, but not always, decedents with estates of less than $5 million will prefer to choose the estate tax in order to receive the full “step-up in basis” rather than electing out of the new estate tax law to the “carry over basis” system. This can be important depending upon the size of the estate and for other matters, such as if the decedent owned a life estate in property.
Of course, other considerations will have to be given in deciding which law to apply as there are no “hard and fast” rules to apply – each case must be considered separately and on its own merits. Accordingly, each estate or trust should be closely examined to determine the most advantageous law to apply.
For deaths occurring in 2011, the applicable exclusion amount determined by the applicable credit is $5 million. Beginning in 2012, this amount will be subject to increase for inflation, with the next adjustment rounded to the nearest $10,000 amount.
Although the new TRA law simplifies estate tax planning in the near term, it certainly complicates planning over the long term. The primary reason for this complication is that the TRA law is set to “sunset” on December 31, 2012. The possibility of a new estate tax – at much lower exclusion amounts – may warrant estate planning of a more proactive approach.
For most estates and trusts, the new $5 million exclusion amount means that the estate tax is not likely not be a major concern, at least until 2012, when we may have a new estate tax law or, upon the sunset of the TRA.
At Wokwicz Law Offices, LLC, we can help you regardless of the size of your estate. We work with individuals of varying degrees of wealth, and will work hard to create an estate plan that is right for you and your situation. Please contact us to discuss your estate plan.