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The amount that one can give at death free from estate tax (known as the applicable
exclusion amount) will remain at $2 million for 2008, as will the estate and gift
tax rate of 45%. After 2008, the whole picture changes. In 2009, the applicable
exclusion amount increases to $3.5 million meaning that with proper planning a
married couple could pass as much as $7 million free of estate tax. Then in 2010,
the estate tax is repealed (temporarily) but a new tax replaces it.
Under current law, most assets receive a step-up in basis at death, which means
that a beneficiary can sell most inherited assets for what they were worth at the
time of death without having to pay any income or capital gain taxes upon sale.
When the estate tax is repealed in 2010, the step-up in basis also will be repealed
and a carry-over basis regime will be installed. As a result of this, with some
designated exceptions, beneficiaries will be faced with increased income taxes in
the form of capital gain taxes to replace the estate tax that will be eliminated.
Some commentators have estimated that the tax revenues raised for the government
under this regime, if left in place for the long-term, would eventually outstrip
the revenues projected under the estate tax regime.
Like a phoenix rising from the ashes, under current law the estate tax is scheduled
to re-appear in 2011. In that year, the tax law reverts to the law as it existed
in 2001, meaning the applicable exclusion amount will be lowered to $1 million and
the estate and gift tax rates will once again become progressive, capping out at
a maximum marginal rate of 55%. If 2011 arrives without a change to this law, many
clients who thought they had no estate tax worries based on what they were told
throughout the period from 2001 to 2010 will be facing some serious estate tax consequences.
This roller-coaster tax law makes estate planning for individuals with net worths
in excess of $1 million unpredictable and requires careful estate planning by a
knowledgeable estate planning attorney. Drafting of plans with the forethought of
dealing with the scheduled changes and the flexibility to deal with anticipated
further changes in the law is critical.
The American Academy of Estate Planning Attorneys (AAEPA), of which our law firm
is a member, has some of the top minds in the industry working on these planning
strategies. The AAEPA has introduced the concept of Legacy Wealth Planning, a paradigm
shift from the way most estate planning attorneys have traditionally approached
planning for clients. The Academy also is pursuing a Private Letter Ruling that,
if approved by the Internal Revenue Service, will change the manner in which most
estate plans will be drafted in the future.
To learn more about how we can assist you and your clients with their estate planning
needs, call (775) 823-9455
death, exclusion, gift tax, applicable exclusion, step-up, basis, beneficiary, capital gain, carry-over, long-term, legacy wealth planning
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