What is in this article?:
- Major changes made in estate tax planning
- Caps the top tax rate
• The president signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 on Dec. 17, 2010.
• One part of this major tax bill was the reinstatement of the estate tax exemption.
• A major change was made in estate tax planning due to the bill.
Caps the top tax rate
The bill also allows the $5 million exemption for deaths in 2011 and 2013 and caps the top tax rate at 35 percent. The exemption is scheduled to be reduced to $1 million for deaths in 2013 and later years with a top rate of 55 percent.
A major change was made in estate tax planning due to the bill. This is the inclusion of a “portability election” in the bill. This will allow a married couple to exclude up to $10 million of total assets from federal estate and still have a stepped-up basis. The way it works is:
1.) If the first spouse dies in 2011 or 2012, they have a $5 million exemption. If, however, their estate is less than $5 million, the unused portion of their exemption can be given to the surviving spouse. Assume John dies in 2011 and has a $2 million estate. The unused $3 million exemption can transfer to his wife Jane.
2.) If the surviving spouse dies in 2011 or 2012, they will have a $5 million exemption plus the unused amount from the first to die. This means Jane can have a $8 million estate and no federal estate tax and the assets will receive a stepped-up basis.
The portable exemption amount only applies to the unused exemption from the last spouse. Consequently, if there have been multiple marriages, only the most recent spouse’s amount is available. In addition, an election must be made in the estate of the first spouse to die to preserve the unused exemption and allow for its use by the last deceased spouse.