fi nancialforum Estate-Tax News T
Be Aware A number of states still impose state inheritance or estate taxes with substantially lower ex- emption limits than the federal limit.
Major adjustments have been made to the federal estate tax for tax years 2011 and 2012. Phil Dyer, CFP, explains some of the changes, including new estate-planning opportunities.
The federal estate tax, which expired in 2010, was scheduled to return Jan. 1 and revert to a level not seen since tax year 2000 — a $1 million estate-tax exemption and a 55-percent top tax rate. Fortunately, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 prevented this and created some new estate-planning opportunities, including: New exemption limits: The federal estate, gift, and generation-skipping transfer (GST) tax exemption is now $5 million a person (or $10 million for a married couple), with a top tax rate of 35 percent for amounts above the exemption. This means lifetime and postmortem transfers of up to $5 million are free from taxation at the federal level. The annual gift-tax exclusion remains at $13,000 per donor per donee. Portability of the estate-tax exemption:
Under the pre-2010 laws, married couples needed to craft “estate equalization” plans to take full advantage of each person’s indi- vidual exemption. With the new portability rule, surviving spouses can use any unused portion of their deceased spouse’s remain- ing exemption to off set their own federal estate, gift, or GST taxes, signifi cantly sim- plifying this process. Important note: This new portability feature is only guaranteed for the next two years, so bear that in mind when crafting your estate plan. Direct charitable contributions from
IRAs are extended to Dec. 31, 2011: Indi- viduals age 701/2 and older who must take required minimum distributions (RMDs)
from IRA accounts are allowed, as in pre- vious years, to make up to $100,000 in qualifi ed charitable contributions. Such contributions are not subject to federal and state income taxes and may be count- ed toward the RMD threshold. Option for 2010 deaths: Those respon- sible for settling the estates of people who died in 2010 may choose between the 2010 rules (no federal estate tax but very complicated modifi ed step-up basis rules) or the new rules, provided the decedent’s estate has not been settled yet. These new rules provide signifi cant planning opportunities for lifetime gifts, especially outright or in trust to grand- children (or even great-grandchildren) for those with signifi cant estates. In addition, closely held businesses and family farms now have a two-year window to combine these changes with appropriate valuation discount approaches, such as the Fam- ily Limited Partnership, to maximize the amount of wealth that can be passed free from federal taxes. It is unclear if any of these provisions
will be extended past Dec. 31, 2012. There- fore, prompt action with competent es- tate-planning counsel is recommended to take advantage of this opportunity.
MO
— Former Army Capt. Phil Dyer, CFP®, is deputy director, Benefi ts Information and Finan- cial Education. To speak with a fi nancial plan- ner, contact USAA at (877) 913-6622 or www
.usaa.com/moaa, or visit
www.moaa.org/fi nan cialcenter for other resources.
*fact: President Obama signed the estate-tax changes into law Dec. 17, 2010. 46 MILITARY OFFICER MAY 2011
PHOTO: SEAN SHANAHAN
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