Will Estate Tax Changes Affect Your Wealth Transfer Plan?
Anyone with a taxable estate is likely to benefit from new rules reducing tax rates and raising the threshold at which wealth transfers are taxable.
If your estate is currently valued at less than $2,000,000 and is not expected to increase substantially any time soon, changes in estate tax rates won't mean much to you. However, for persons with larger estates, the law now offers significant, but perhaps temporary, tax breaks through phased rate reductions and increases in exclusion amounts.
The amount you can leave to your survivors free of estate tax increases from $2,000,000 in 2006, to $3,500,000 in 2009. The amount that can be transferred free of gift tax by lifetime giving is $1,000,000 and will not increase. During the same six-year period, the maximum wealth transfer tax rate on taxable amounts decreases from 50 percent to 45 percent.
Spouses are permitted to join in any gift by the other spouse for the purpose of calculating the tax-free limit. That means that by 2009 a married couple could transfer up to $9,000,000 free of wealth transfer tax... inheritances totaling $7,000,000, reduced by lifetime tax free gifts of $2,000,000 . . . both significantly more than current limits. To do that, however, both would have to die in 2009!
Unfortunately, there is a catch in the decreasing rates. A "sunset" provision in the 2001 Tax Act that made lower rates and higher exemptions the law effectively repeals every provision in the Act on December 31, 2010. The 2009 rules could be retained, the law could revert to pre-2001 status, or some variation of either one could become law for 2011.
Never, in our memory, has planning for wealth transfer been more confusing and uncertain. That's why we have studied the law closely and have networked with nationally recognized authorities to stay up to date on planning opportunities and pitfalls created by the uncertainty. As always, if you have any questions about wealth transfer taxes, just call.
|