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Planning Opportunities Under the New Estate and Gift Tax Law

On December 17, 2010 Congress enacted a new tax law which changes the federal gift, estate and generation-skipping transfer (“GST”) taxes currently in effect. However, the new law is only effective for the next two years, through December 31, 2012. The new law reinstates the lifetime exemptions for the estate, GST and gift taxes and increases the amount of the exemptions to $5,000,000 per person with a top tax rate of 35%.

The law provides new opportunities for clients. The increased gift tax exemption allows for clients to make tax-free gifts of their estate which might otherwise be taxable. The new gift tax provisions allow someone who has already made taxable gifts totaling $1,000,000 during his or her life to have an additional $4,000,000 of gift tax exemption available for use during his or her life. This is an immediate planning opportunity for clients who may wish to take advantage of the tax law changes.

The new law may also alter many clients’ estate plans. For example, assume a client’s estate plan is drafted to provide that the estate is to be divided into a family trust and a marital trust with the family trust being funded with the maximum estate tax exemption and the marital trust being funded with the amount, if any, of the estate that exceeds the exemption amount. Thus, under current law, the family trust would be funded with the first $5,000,000 of the estate (or the entire estate depending on the value of the estate) with the possibility that no portion of the estate would pass into the marital trust. Given the increased exemption, this may or may not be what a client would want to happen.

Many clients’ current estate plans include a family trust to ensure the use of the first spouse’s estate tax exemption because the prior law provided if the estate exemption was not used at the first spouse’s death it was lost. The new law provides for “portability” of the estate tax exemption. Thus, a surviving spouse may elect to add the deceased spouse’s unused estate and gift tax exemption to the surviving spouse’s exemption, thereby increasing the surviving spouse’s estate and gift tax exemption for transfers during life or upon death. For instance, if the first spouse dies and only used $2,000,000 of his $5,000,000 estate tax exemption, upon election, the surviving spouse would now be able to shelter $8,000,000 from estate and gift tax (the surviving spouse’s exemption of $5,000,000 plus the deceased spouse’s unused $3,000,000 of exemption).

The new law also applies to the estates of individuals who died in 2010 and who may wish to take advantage of some of the planning opportunities. If a family member passed away in 2010, you may want to discuss what planning opportunities are available related to the estate with your estate attorney.

While the new tax law is a step in the right direction, it only applies through December 31, 2012. Therefore, it is important to confirm your estate planning documents are drafted to address the changing tax law as well as to take advantage of the new opportunities that are currently available and may expire in two years. Even if your estate is below the new exemption amount, it is still important to make sure your estate plan is up to date to ensure your intent is carried out and to maximize all of the options available to you. 

©Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2021. All rights reserved.National Law Review, Volume I, Number 32
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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
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