December 7, 2021

Volume XI, Number 341

Advertisement
Advertisement

December 06, 2021

Subscribe to Latest Legal News and Analysis
Advertisement

No Estate Tax – Windfall or Pitfall?

This is the first time in almost 100 years where there is no federal estate tax and no generation-skipping transfer tax (sometimes collectively referred to as the “Estate Tax”). As of January 1, 2010, the Estate Tax has been repealed for one year only. Consequently, no federal estate tax will apply to estates of individuals dying in 2010 and no generation-skipping transfer tax will apply to generation-skipping transfers made in 2010. The federal gift tax remains in effect but with a reduced top gift tax rate of 35%. In addition, the “step-up” in basis regime, which allows the basis of an asset to be increased to its value at the date of death, is repealed for 2010. Further, the step-up in basis regime has also been replaced with new carryover basis rules which are very complex.

How Are You Affected?
Not having an Estate Tax for one year may not be the windfall that some people think it could be. The repeal of the Estate Tax, along with the enactment of the new carryover basis rules, may result in your estate not being distributed as you intended if changes are not made. Depending upon an individual’s particular circumstances, the application of the 2010 new carryover basis rules may require a change in how assets are divided and/or taxed at death. In those cases, unless changes are made to the estate plan to specifically address these issues, the individual’s plan may be significantly affected. For example, if your estate plan provides for the maximum amount that is exempt from Estate Tax to be set aside for descendants, and there is no Estate Tax, all assets will be given to your descendants and no assets will be set aside for your spouse. However, in 2010, the ability to adjust the basis of inherited assets for non-spousal gifts/distributions is limited, whereas the basis adjustment for spousal gifts/distributions is approximately 2-1/2 times greater. Thus, your estate plan may be affected.

On the other hand, the repeal of the Estate Tax has created extraordinary but temporary planning opportunities for some, again, depending on one’s circumstances. It was fully anticipated that Congress would act before 2010 and not permit the repeal of the Estate Tax for one year. Currently, no one knows if or when Congress will act and, if it does, what possible solution it will enact. Some experts predict that the Estate Tax could be reinstated retroactively to January 1, 2010 or that there may be no action at all which would leave 2010 an Estate Tax free year.

What Should You Do?
You cannot afford to follow Congress’ lead by doing nothing. This is an important time for you to review your estate plan to ensure that it still accomplishes your estate planning goals in the event of death in 2010. As the tax law changes, it is possible that your assets may not be distributed as you anticipated. Moreover, there may be some planning opportunities that you will only be able to use in 2010, which leaves a small window of opportunity to act. Given these uncertain times, it is recommended that you contact your estate planning attorney at your earliest convenience to schedule a review of your estate plan and to discuss what planning opportunities may be available to you given your particular circumstances.

For more information on Estate Planning, Federal Tax and Probate, Guardianship and Trust Administration, please see your attorney or visit http://www.lowndes-law.com/estateplanning.

©Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2021. All rights reserved.National Law Review, Volume , Number 127
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Julia L. Frey, Lowndes Law Firm, Estate Planning Attorney
Partner

Julie Frey is a partner with the firm, and is board certified by The Florida Bar. Her principal areas of practice are estate planning, probate, trust administration, guardianship, elder law and federal tax. Julie counsels a broad range of clients, including high net worth clients with needs for sophisticated estate planning techniques, physicians and others who have specific needs with respect to asset protection, couples who are in second marriages, domestic partners, “sandwich generation” individuals who have planning concerns for their parents, their children and themselves, and...

407 843-4600
Matthew O'Kane, tax attorney, Lowndes, law firm
Partner

Matt O'Kane has a broad background in federal tax, Florida state tax, estate planning and U.S. taxation of foreign investors. He counsels clients on a broad range of federal tax issues and business planning issues from entity selection and formation to dissolutions. He advises clients on Florida state tax issues and represents clients in controversies involving the Florida Department of Revenue. He has lectured on Florida sales tax, documentary stamp tax and intangible tax. He also counsels clients on a broad range of wealth transfer issues including estates, gift and generation skipping...

407-843-4600
Norma Stanley, estate planning, tax, attorney, Lowndes, law firm
Partner

Norma Stanley advises clients on estate planning, federal tax, probate, guardianship and trust administration, and elder law. With more than 20 years of legal experience in wealth transfer, business succession, sophisticated tax, trust and estate planning, estate and trust administration and family office creation, Norma represents a myriad of clients, including high net worth individuals and their families, beneficiaries of trusts and estates, and trustees and small business owners. In addition to providing estate planning, including complex estate planning for high net worth individuals...

407-418-6467
Advertisement
Advertisement
Advertisement