Death Tax(s)--Where are we headed?
The point that I wish to make here is that the present situation is tragic in that our elected officials have chosen to leave estate planners and tax payers in a quandary as to what their family's risk for Death Taxes is presently and what it might be in the future. There are numerous proposals by Senators and Congressmen at the federal level, but I do not know which proposal, if any, will actually be enacted into law.
For deaths occurring in 2010 there is no Federal Estate tax (Death tax). However; it appears that one may have to file tax forms to select assets to receive a stepped up cost basis up to 1.3 million for non spouse or charitable heirs with an additional 3.0 million available for a surviving spouse. Please see my article: How is the stepped up cost basis important?
On January 1, 2011 if Congress does not change the law, the old estate tax that existed before 2001 will resurface with an estate tax exemption of $1.0 million and a combined gift, estate and generation-skipping top tax rate of 55%+. The only good news in this development is that the unlimited "stepped up cost basis" also returns.
The present Washington State inheritance tax exemption is $2.0 million. For those current estate plans that tie the amount of funding to the federal exemption, could find themselves having to pay a Washington Estate Inheritance tax for the amount over $2.0 million upon the first spouse's death. This is one risk in "formula gifts" that could cause unintended tax consequences as well as skewing the intended gift to various beneficiaries, particularly in blended families.
How does this affect me?
- If you have $1.0 million or less, an individual or married couple, this situation will probably not impact your heirs.
- If you have a current estate plan that established a Credit Shelter Trust (CST) to maximize both federal tax exemptions for a married couple in a "formula gift" manner, that estate planning document should be looked at right now by a qualified estate planning attorney.
I must add a disclaimer to be fair. This is a short article of a highly complex topic. Your specific intent combined with your circumstances must be independently reviewed by you with your Estate Planning Attorney to implement an Estate Plan.