If you were following the news around the end of the year you are well aware of the fact that a new tax bill that is now being called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 made it through Congress and was signed into law by the president on December 17th. This measure extended the Bush tax cuts and also reduced the Social Security payroll tax by nearly a third for 2011. In addition, the estate tax exclusion was raised to $5 million and the rate of the tax was reduced to 35%.
This new tax act also made the estate tax exemption portable between husband and wife. The $5 million estate tax exclusion is per person, so a married couple has a total exemption of $10 million to work with. Previously the exemption was not “portable” so if you died without using all or part of your exemption your surviving spouse could not use the remaining portion. Now that the estate tax exemption is indeed portable the surviving spouse can use the remaining exemption of his or her deceased spouse. This is key because the lack of portability was the primary reason for the creation of bypass trusts.
However, before you alter your estate plan in any way it is very important to recognize the fact that these changes are not permanently etched in granite. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 will sunset at the end of the 2012 calendar year. We will then be faced with a $1 million exclusion and a 55% max rate once again if no new legislation is passed, and the continued portability of the exclusion is not a given. So if you are considering making any changes to your estate plan based on these new parameters you would be well advised to discuss the matter thoroughly with an experienced, savvy estate planning attorney.
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