All taxable gifts and the estates of all decedents are taxable under a single, unified rate schedule under which lifetime taxable gifts and transfers at death are taxed on a cumulative basis.
» Federal Estate Tax - Federal estate tax, although in a persistent state of flux and debate, is secure through 2012. It is a tax levied against all estates, and will only be payable if the tax exceeds the amount of the estate's exemption. The value of the taxable estate includes the value of all property the decedent owns at death, plus the value of all taxable gifts made after 1976.
Commencing on January 1, 2011, the estate tax exemption is $5,000,000.00 per person (adjusted for cost of living after 2011). The estate tax rate is 35% through 2012. For 2011 and 2012, a surviving spouse can also use all of his or her per-deceased spouse's unused estate tax exemption. This is called "portability".
This seems, to the unwary, to eliminate the need to plan. Unfortunately, it remains unclear in many ways, including how this new provision will be implemented, The Internal Revenue Service has been given authority to proscribe regulations as to how the provision will be applied in the context of a remarried surviving spouse. In light of the unknown regulatory requirements, and since this tax fix is presently only available for the tax years 2011 and 2012, we recommend continued use and maintenance of Family Trusts in estate planning documents to provide our clients the utmost flexibility to handle estate tax if and when the time comes. Also, we continue to remind clients of the numerous "non-tax" benefits of Family Trusts.
» Federal Gift Tax - All gifts in excess of $13,000 to any one person in a single year are subject to tax. We call this the "Christmas present exclusion". Married persons may make joint gifts to third parties, thereby being effectively taxed at lower rates and also doubling the annual exclusion to $26,000.00 per donee. Gifts above $13,000/$26,000 per donee, do not result in the donor needing to "write a check". Rather, the $5,000,000 lifetime exclusion is applied until there is no tax actually owed. This reduces a donor's lifetime exclusion, which would otherwise be available at the donor's death.
