Estate Tax

Estates of people who died in 2010 (prior to Dec 18) will maintain the 2010 rules which would mean no estate tax, but the estate would be subject to the "modified carryover basis system" which in some cases would result in more taxes being paid -- UNLESS -- they elect the new rules.

So, it depends on individual circumstances which regime is better. But, generally, the new estate tax provisions are very generous historically speaking.

Note that the rest of this page has not been updated. However, it is still relevant because since the new law expires on December 31, 2012 unless Congress acts before then -- we will be back in exactly the same position as discussed below in two years. So, it's worth reading and thinking about.

Of course, this stuff is complicated and we always advice you discuss your individual circumstances with an experienced estate planning attorney.

Hey, good news about taxes! It's 2010 and at this moment the estate tax is no more. Really. There is currently no federal "death tax" in the United States. So, if you die this year, your estate should not have to pay any the tax, no matter how big it is.

BUT -- of course your estate still might have a state estate tax. Also, of course, we don't know what the heck Congress is going to do about the estate tax. Neither do they, which is really scary. They may well do something retroactive to January 1, 2010 in which case, your estate will owe an estate tax after all.

And, if we do nothing? Well, then on January 1, 2011 we revert back to the old estate and gift tax law we had in 2002. If so, the law will be that there will be no estate tax on the first $1 million in estate assets; anything above that will be taxed at the maximum draconian rate of 55%. [The rules will be the same for the gift tax, except a different tax rate, but that's another issue.]

And, that potential 55% rate is on top of any estate tax your state my impose. Wow, whopper of a tax, imposed on our assets -- after we die. Hence, the reason some call it the "death tax."

Most assume Congress will do something to raise the estate tax exemption level at least. After all, it was as high as 3.5 million just last year. But, then again, no one thought Congress would let the estate tax expire on December 31, 2009 -- but they did.

Obviously, this is a nightmare for the prudent estate planner -- trying to predict what the politicians in Washington DC will do. Probably the most prudent course is to assume the $1,000,000 credit and 55% tax rate currently in the works and take appropriate steps. Of course with a $1 million threshold, many, many people need to be concerned about taking steps to minimize their estate tax.

You can read more about the estate tax and how to limit or avoid it at estate tax. The use of a Credit Shelter Trust or A-B Trust is discussed at Credit Shelter Trust. And, here's updated information about the gift tax.

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