| | Due to the priorities of Congress last year, there are currently no federal estate or generation skipping transfer (GST) taxes. This situation could last for a few months or this entire year. Congress could even pass a law that is retroactively effective to extend the 2009 estate tax laws without a gap, which would likely be challenged. If Congress should fail to act for all of 2010, the existing law will reinstate an estate tax in 2011 with a federal tax rate of 55% and a $1 million exemption amount instead of the $3.5 million exemption available in 2009. A separate Colorado estate tax could also return in 2011.
While this repeal could result in estate tax savings for people dying this year, the disposition of your estate could be changed from what was originally intended. Many tax planning documents refer to the old "unified credit" or "applicable exclusion amount" which only existed with an estate tax. Without the estate tax, the funding of bequests or testamentary trusts based upon such amounts would likely be altered. The lack of a GST tax also denies any GST exemption allocations. These changes could especially affect the amounts passing to surviving spouses and gifts to grandchildren, directly or through trusts.
Further, beneficiaries could incur additional capital gains taxes upon estate asset disposition. This results from a change in computing basis on inherited assets from date of death value under prior law to a carryover of the decedent's tax basis under the estate tax repeal. Identification of low basis assets and specific allocation among beneficiaries may be needed to minimize the effect of this.
If you have any concerns about the possible effect upon your current estate and lifetime gifting plans, please contact us for a review of your existing estate planning, trust and business succession documents. We can then explain the effect of the current law and, if desired, prepare amendments to compensate for the changing estate tax laws.
Unfortunately, we just don't know when Congress will act or what they will do. We want our clients to be confident that we are on top of the situation and stand ready to assist you now and as additional changes occur.
Constance D. Smith practices in tax planning for estate disposition, lifetime wealth transfers, business succession, and probate administration. Her experience in multiple areas of law, personal finance, and small business administration aids Connie in drafting custom-designed wills, trusts, partnership agreements, and private foundation documents. Connie can be reached at 303-628-9557 or by email at csmith@rothgerber.com.
Circular 230 Disclosure: Pursuant to IRS Regulations, we must inform you that any federal tax information, advice or recommendations contained in this communication is intended for informational purposes only and cannot be used or relied upon to avoid IRS imposed penalties or to promote, market or advise any other person(s) of such information.
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| January 8, 2010
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This alert has been prepared by Rothgerber Johnson & Lyons LLP ("RJ&L") for general informational purposes only. These materials do not, and are not intended to, constitute legal advice. The information provided in this alert is not privileged and does not create an attorney-client relationship with RJ&L or any of the firm's lawyers. This alert is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this presentation. The hiring of a lawyer is an important decision that should not be based solely on written information about qualifications or experiences. The Wyoming State Bar does not certify any lawyer as a specialist or expert. Anyone considering a lawyer should independently investigate the lawyer's credentials and ability, and not rely upon advertisements or self-proclaimed expertise.
Constance D. Smith, Esq. is the lawyer responsible for the content of this material. She can be reached at 303-628-9557 or at csmith@rothgerber.com.
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