Morris Manning & Martin, LLP

It Is Time to Review Your Estate Plan


Now that the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (the “Act”) is law, it is important to review your current estate plan and documents.

Major Changes - Highlights

As widely reported in the general press, the Act implements new provisions for the estate, gift, and generation-skipping transfer (“GST”) taxes (collectively, “transfer taxes”).  Currently, these changes are only effective through December 31, 2012.  However, it is widely believed these changes may be extended permanently.

  1. Estate Tax:  The Act retroactively reinstates the federal estate tax as of January 1, 2010 at a maximum federal estate tax rate of 35% with an estate tax exemption of $5 million.

  2. Gift Tax:  The maximum gift tax rate remains 35%, but the gift tax exemption increases to $5 million in 2011.  Thus, the Act:
    • reunifies the federal estate and gift tax exemptions at $5 million, and
    • ties the federal GST tax exemption to the maximum federal estate tax exemption.
    The Act also now provides for annual inflation adjustments.

  3. GST Tax: The Act retroactively reinstates the federal GST tax on generation-skipping transfers (e.g., transfers to grandchildren and more remote descendants and/or trusts for their benefit) as of January 1, 2010 and provides a $5 million GST tax exemption.  For generation-skipping transfers after 2010, the GST tax applies at a flat rate of 35%.

  4. Gift/Estate Tax Exemption Portability: After December 31, 2010 the executor of an estate can elect to transfer to the surviving spouse the deceased spouse’s unused unified exemption amount after reduction for the deceased spouse’s taxable estate.  To do this, the deceased spouse’s executor must file a timely estate tax return indicating the amount and electing to make this unused amount available to the surviving spouse.  The surviving spouse can only use the unused exclusion amount of his or her “last such deceased spouse” to prevent the accumulation of the unused exemptions of multiple spouses.  This "portability" between spouses does not apply to the deceased spouse’s GST tax exemption, however.

  5. Sunset:  Currently, the Act’s transfer tax provisions sunset after December 31, 2012, and the Internal Revenue Code will apply as if the amended provisions “had never been enacted.”  However, it is widely assumed these provisions will be extended. 

Due to these new rules, many individuals may be able to simplify their estate plans and associated documents dramatically.  The increased gift and GST tax exemptions also provide significant and enhanced opportunities for the lifetime transfer of wealth to future generations at no tax cost.

Please call us so we can review with you the impact of these changes on your estate plan and the appropriate changes to your estate planning documents.

We will hold a webinar, "New Estate and Gift Tax Law: Unprecedented Opportunities for 2011 & 2012," on Wednesday, February 16, 2011 to discuss these changes and opportunities in more detail.  Please click here to register for this complimentary event.