I’ve already written about the state of the estate tax twice this year: once in March, which in retrospect, was so long ago, and then again in June, after billionaire Dan Duncan died (leaving a $9 billion presumably tax-free estate behind). With most of 2010 in the rearview mirror, what will be the ultimate result of the estate tax in 2010 and what can be expected in 2011? Even more importantly, what estate planning should be done now to avoid headaches later?
Popular opinion seems to be that the Estate Tax will return to relatively high levels in 2011. From what we can tell now, those who die in 2011 will be allotted a $1 million exemption (down from $3.5 million in 2009 and no estate tax in 2010). After the $1 million exemption, most bets have been placed on a 35 to 45 percent tax on the rest of the estate. Though Congress is notorious for instating retroactive taxes, it appears, as of now, that 2010 will remain an Estate Tax free year.
Armed with the knowledge that 2011 could be brutal for those who have estates in excess of $1 million, what can be done by families to plan ahead for 2011 and the future? Here are some strategies that you might consider (with your tax professional and counsel):
Since tax rates will presumably only go up from here, the end of 2010 is a great time to speed up income or bonuses that would be received in 2011. In addition to accelerating income, it may be prudent to try to sell appreciated stock or real estate in 2010 to avoid any extra taxes that may be assessed.
It appears that capital gains taxes will also be rising in 2011. Aside from selling appreciated assets now, it may be a good idea to hold on to depreciated stocks and assets until 2011, so that losses can be used to offset other gains.
Proactively, consider a trust, or multiple trusts, for your family: charitable remainder trusts, family limited partnerships, irrevocable trusts and dynasty trusts may be good options, depending on your personal financial situation (and the advice of your financial professionals).
Older people might consider giving part of their estate away earlier in life. Not only will they get to see their beneficiaries enjoy this gift, but they are allowed to give away $1 million tax free during their lifetime, and the yearly limit is $13,000 to any number of individuals.
Don’t forget charities! Giving now – and posthumously – will not only help the charitable organization of your choice, and make you feel good, it will help your tax bill, too.