New Tax Relief Act Creates New Opportunities

The current Tax Relief Act that in effect allows an opportunity for reviewing your estate plan.  Many people will want to review their wills and trusts to ensure that they still meet your objectives. Tax Law Changes

 The new law, formally called the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, has received a great deal of press because it extends current income tax rates for all taxpayers through 2012.

The Act also profoundly affects estate, gift and generation-skipping transfer (GST) taxes:

• For 2011 and 2012, the lifetime gift and estate tax exemptions are reunified with an exemption of $5 million for individuals (up to $10 million for a married couple). Additionally, an individual’s GST exemption will be $5 million.
• Estate, gift and GST tax rates are 35% in 2011 and 2012.
• A new “portability” provision enables an executor to transfer any estate tax exemption not used by a deceased spouse to the surviving spouse.

What to do

If Congress does not act to prevent the Tax Relief Act’s new rules from sunsetting, there will be a reinstatement in 2013 of pre-2001 rates (55% for estates and lifetime gifts) and exemptions ($1 million for estate and gift taxes, and approximately $1.35 million for GST taxes).

This means the opportunities created by the Act may be time-limited.  As the new law already is in effect, it is very important that you consult with your legal and tax advisors as soon as possible.

Take advantage of gifting opportunities.

 The increase of the lifetime exemption from 2010’s $1 million level to $5 million in 2011 allows individual taxpayers to transfer $4 million (8 million if married) more than they could have in 2010 without incurring any gift tax.

• The additional tax-free amount can be used either for outright gifts or for transfers to trusts, including generation-skipping trusts.
• It is a fundamental tenet of good estate planning to use exemptions early because once assets are gifted, future income and growth are not included in your future taxable estate.  Now, the Act’s five-fold increase in your gift exemptions creates a chance to remove five times the income and growth from your future estate.
• Consider forgiving loans as another alternative use of the increased gift exemption.

Additional items to consider:

• Giving assets that have strong return potential.
• Transferring assets that can be discounted for gift tax purposes.
• Giving to irrevocable “grantor” trusts that allow you to pay the ongoing income tax liabilities on trust investments, maximizing the return to your heirs.
• Giving assets with higher cost basis (when possible), because donees receive your cost basis.

Periodic estate plan reviews are an essential part of your financial planning.  Gill Capital’s advisors in conjunction with a qualified estate planning attorney can help answer your questions and make the most of these new opportunities.