After long last, we finally see what will happen with the estate tax in 2011. Until Congress made this move, the estate tax was set to return in 2011, at a top rate of 55% for estates valued over $1 million. In the deal reached between Obama and Republican leaders, the top rate will be 35%, and the tax will only apply to estates valued at over $5 million.
MarketWatch.com put together a list of the ways this deal on the estate tax will affect everyday taxpayers. You can find a section of their article below, or click here for the full text.
For starters, consider the possibility that most Americans won’t even need a plan for federal estate taxes, especially if Congress also passes what estate planners refer to as “portability.” That’s the ability of a surviving spouse to use the unused exemption of the first spouse to die.
“There will be a significant drop-off in the business of estate tax planning, because even more people will have no significant estate tax problems,” said Howard Zaritsky, a Rapidan, Va.-based attorney specializing in estate planning. “And if Congress also passes ‘portability,’ this will very significantly remove over 99% of the public from the need for estate tax planning.”
Some years ago, a net worth of around $3 million to $3.5 million was considered the wealthiest 1% of the population, according to Martin Shenkman, an attorney and CPA who practices in New York City and Teaneck, N.J.
In a report on the tax compromise, written for Steve Leimberg’s Estate Planning Newsletter, Shenkman said: “A $5 million threshold would thus mean far less than 1% of the families would be effected. If in 2009, with a $3.5 million exclusion, only about 16,000 decedents filed a federal estate tax return, a $5 million exclusion should reduce the number to a miniscule figure.”
Of course, the specific federal estate tax exemption and rates could still change, but if the proposed agreement does in fact become law, estate planners say these five moves will be important to manage your financial affairs properly:
1. Create a bypass trust
Don’t overlook the potential need for a bypass trust.
According to Shenkman’s report, “Failing to establish the bypass trust that had been the cornerstone of most tax oriented estate plans of the past might lead the surviving spouse to a taxable estate problem, especially if the survivor’s exclusion is not indexed for inflation.”