Estate Planning
| Do you understand the current estate tax laws? |
| Published Wednesday, May 21, 2008 |
The starting point is the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which revolutionized federal estate tax law. The following are several key changes over the next few years that you should be aware of:
Estate tax repeal
Most significantly, EGTRRA completely eliminates the federal estate tax for decedents dying after 2009. However, unless further legislation is enacted, the federal estate tax will be revived in 2011 under pre-EGTRRA levels. This chain of events, with effective one-year repeal, is the cause of much consternation.
Estate tax exemption
The estate-tax exemption is gradually increasing over a period of years. For decedents dying in 2007, it can effectively shelter up to $2 million from estate tax. This equivalent credit shelter will eventually top out at $3.5 million for 2009 before the estate tax is repealed in 2010.
Tax rates
Following a schedule similar to the estate tax exemption, the top federal estate tax rate (which was set at 55% prior to enactment of EGTRRA) is gradually decreasing. It has declined to 45% for decedents who passed in 2007. This percentage will remain the same through 2009.
Gift tax exemption
Unlike the estate tax exemption, the gift tax exemption has remained locked at the $1 million figure. However, the gift tax has also been reduced to 45%. After 2009, the gift tax rate will equal the top individual income tax rate (currently 35%).
Step-up in basis
Beginning in 2010, heirs will no longer benefit from a "step-up" in basis to the value of assets received at death. Instead, they must carry over the decedent's basis. There are two key exceptions: (1) The basis for qualified assets can be increased by a step-up of $1.3 million. (2) The basis for assets transferred to a spouse can be increased by an additional step-up of $3 million.
Generation-skipping tax
The generation-skipping tax (GST), which applies to most transfers to grandchildren, is subject to the same repeal and renewal as the federal estate tax. For 2008, lifetime transfers are eligible for a $2 million exemption. The exemption amount is scheduled to increase to $3.5 million in 2009. Note: The top GST rate is reduced to coincide with the reduction in the estate-tax rates.
Absent any further Congressional action (there has been much talk about change in our nation's capital, but no consensus thus far), business owners must address their situation under the existing law. This requires a comprehensive review of personal and business circumstances and contemplation of potentially dire estate-tax consequences after 2010.
Fortunately, a professional advisor may help implement techniques that may benefit small business owners. For example, a 15-year installment plan may be elected for estates where a closely-held business interest comprises more than 35% of the adjusted gross estate.
Please contact us for estate planning techniques and strategies.
Arthur J. Hurley, CPA is a Partner with Daszkal Bolton LLP and founder of Game Plan Financial, our professional athlete and celebrity niche tax practice. Art develops and coordinates comprehensive financial plans for high net worth individuals, including estate planning, financial management, tax planning and compliance, risk management, retirement planning and business advisory services. Contact him directly via email at ahurley@daszkalbolton.com or by phone at 561.953.1512.
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