Tax-Advantaged Investing

Tax Law changes 100x67 2011 Tax Law Changes That May Impact Gift and Estate PlansWith all of the activity that occurs in Washington and considering that it’s primarily the sensational news that bubbles up to the top of the fold, it’s often easy to miss news about subtle areas of legislation that may ultimately impact your family’s finances.

On December 17th, 2010, just such an event occurred.  President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

For individuals and families with an estate plan in place, this Act may prompt revisiting certain planning strategies and decisions for the 2011 and 2012 calendar years (the years affected by the Act)–in particular, regarding estate and gift transfers.

The Act reduced the top estate, gift and generation-skipping transfer (GST) tax rates to 35%, and established a higher exemption amount of $5M per individual.  This has the benefit of excluding more assets from federal estate taxes.  However, keep in mind one’s state estate tax exemption amount and whether state taxes would be due on the difference if your state estate tax rate is lower — in particular, for non-marital dispositions to (for example) beneficiaries.

The reduction in the top tax rate also allows more assets to pass to non-charitable beneficiaries, and may be a factor in revisiting your dispositive plans as well as your taxable gift plans during one’s lifetime.  In particular, since the likelihood of gifts resulting in gift taxes has now been reduced.

The Act also allows for unused exemptions to be transferred to a surviving spouse.  As a result, the surviving spouse may not need to retitle assets or leverage shelters to reduce his or her tax liability on the estate transfer.

These changes are currently targeted to sunset in 2012, so make plans to revisit any changes in your strategy that were recently implemented.  In light of the debt troubles that the US is experiencing, the chances that this Act will be allowed to sunset may be high if Washington needs additional revenue to pay down debt.

This article does not intend to address every section of this wide-reaching tax law.  Stay tuned for additional analysis on other provisions of the law and future changes.

View on The Wall Street Geek’s business website Price Capital.

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