The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”) became law on December 17, 2010.  Among many other tax changes, the Act sets the gift and estate tax through December 31, 2012.  Following is a brief description of the gift and estate tax for 2011 and 2012; a more detailed whitepaper is available.  In 2013, the estate and gift taxes will revert to the law in effect in 2001.

Estate and Gift Tax Overview
Gift and estate taxes apply to transfers of property during a taxpayer’s lifetime and at death.  Beginning in 2011, the estate and gift taxes will be unified with a single graduated rate schedule and single effective exemption amount.   

Gift Tax
The gift tax is imposed on certain lifetime transfers.  For gifts made in 2010, the applicable exclusion amount for gift tax purposes is $1 million, and the gift tax rate is 35 percent.  This means that lifetime gifts totaling less than $1 million will have no tax liability.  For those gifts that exceed the lifetime total of $1 million, there is a 35 percent tax on the gift amount over $1 million.   

For gifts made after December 31, 2010, the gift tax is unified with the estate tax, with an applicable exclusion amount of $5 million and a top estate and gift tax rate of 35 percent.

A gift received from a donor generally takes a carryover basis for capital gains tax.  This means that the donee’s basis in the property is the same as the donor’s.  If the donor pays gift tax then the basis of the property transferred is increased to the fair market value of the gift.

There is an important exclusion and deduction for the gift tax.  The gift tax annual exclusion is $13,000 per donor, per donee, for 2010 and 2011.  If the non-donor spouse consents to split the gift with the donor spouse, then the annual exclusion is $26,000 for 2010 and 2011.  The gift tax annual exclusion is indexed for inflation.  Gifts in excess of the annual exclusion or gifts that are not gifts of a present interest (such as certain gifts in trust) are automatically applied to the gift tax applicable exclusion amount.

In addition, there is a marital deduction for gift taxes for the value of property transferred between spouses.  The marital deduction applies to outright gifts to the spouse and to qualifying trusts for the benefit of the spouse.

Estate Tax
The estate tax is imposed on certain transfers at death.  The total tax will be determined on the cumulative taxable transfers made by a taxpayer during his or her lifetime and at death. The estate tax applicable exclusion is $5 million for decedent dying after December 31, 2009 and is indexed for inflation in calendar years after 2011.   The maximum estate tax rate is 35 percent.  Lifetime gifts will reduce the estate tax exempt amount.

A recipient of property acquired from a decedent who dies after December 31, 2009, generally will receive a fair market value basis (i.e. a “stepped up” basis).

In addition, any applicable exclusion amount that remains unused by the decedent is generally available for use by the surviving spouse as an addition to the surviving spouse’s applicable exclusion amount.  Therefore, the applicable exclusion for a married couple is $10 million.

Sunset
The gift and estate tax provisions sunset December 31, 2012.  At that time the estate and gift tax applicable exclusion will revert to $1 million with a maximum rate of 55 percent.  In addition, the portability of the unused exemption between spouses will not be available.

TUTORIAL MAP

Net Worth:    < $300,000     Up to $1,000,000      1 to 5 Million      Over 5 Million

Life's Complexities that can be protected against
- Your beneficiary has an accident and is sued
- Surviving Spouse Remarries into fiscal irresponsibility
- Keeping your wealth in the family should your surviving spouse remarry
- Keeping your wealth in the family upon divorce of a beneficiary
- Surviving spouse needs both money and money management
- Surviving spouse has an accident and is sued

The Process we follow:      New Client               Probate                 Picking a Trustee

Some Helpful Information:     Definitions
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