Estate Tax Planning

Estate planning to avoid federal estate taxes has not been as big a concern for most of our clients after the Economic Growth and Tax Relief Reconciliation Act of 2001.

The Act raised the Unified Credit from $600,000 to its current $3,500,000 in 2009.  In other words, only estates above $3.5 million are subject to the 45% federal estate tax in 2009.  However, the Act is set to change the Unified Credit amount to unlimited in 2010, which means that there would be no federal estate tax in 2010.  In 2011, the Act resets the Unified Credit back to $1,000,000.

Washington D.C. is currently embraced with health care reform, and can think about little else.  But there is a glimpse of what come out of the capital city regarding federal estate taxes.

There is general consensus on two key provisions of the federal estate tax law.  First, the Congress seems set to fix the Unified Credit at $3,500,000 (its current level in 2009).  Second, the Bills introduced in the Senate have a portability provision for the Unified Credit which would allow a married couple to essentially share their unified credit.  In other words, when husband dies and leaves everything to his surviving spouse, he uses none of his unified credit.  The new Senate Bill allows his surviving spouse to use both her unified credit and her deceased spouse’s unused unified credit.  This means that all estates should be able to easily protect $7,000,000 from Federal Estate Taxes without using trusts.