2010 brings with it a mixed goody-bag from our friends in the federal government. This year, we’ll enjoy:
- A one-year repeal of the federal estate tax
- A drop in the gift tax rate to 35%
- A one-year repeal of the federal generation skipping transfer (GST) tax
Before you celebrate, take a look at the bigger picture, and ask what these unprecedented changes in tax law mean for you – now and in the future. If your assets total more than $1 million, it is important to review your estate planning documents to ensure they are up to date with the new laws to avoid unnecessary risks and taxes.
Several factors must be considered. First, 2010 brings a new system called “carry over basis” (COB), which means that many who would have paid no tax will now be paying capital gains tax when they sell inherited assets. Picture yourself searching for records to show what your parents or grandparents paid for their stocks, their gold, or their home. And be prepared for capital gains tax rates to increase dramatically over the coming years.
Second, the 2010 repeal was unexpected and many wills and trusts should be amended to take advantage of up to $4.3 million in “free additional basis” for inherited assets. The 2010 law provides $1.3 million in basis adjustment for all estates and potentially another $3 million of basis adjustment for a married person, but only with the right will or trust provisions.
Third, and perhaps most importantly, many tax sensitive wills and trusts use words and formulas based upon the federal estate and GST tax systems. Those tax systems do not exist in 2010, which puts the taxes and the assets at risk.
The tax law of 2010 will be nothing more than a mirage if Congress does not act further. The federal estate tax law and the GST come back with a vengeance in 2011 with higher tax rates (maybe as high as 49%) and lower exemption amounts ($1 million).
The bottom line is review your estate plan in light of 2010’s new developments and collect ownership and tax basis information for every asset you own.
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Moschella & Winston has specialized in legal planning and protection for individuals and families for over 30 years, and our attorneys are experts in elder, disability and special needs law. Please contact us at info@moschellawinston.com or (617) 776-3300.
