Estate Tax: What You Need to Know Now
Some people have decided to postpone estate planning until Congress eventually passes new
federal estate tax legislation. But waiting may have consequences. Here’s what you need to
know to help you navigate the uncertainties of current and possibly future estate tax rules.
Few people ever imagined a time without estate taxes. Since the federal estate tax is repealedfor this year, it may seem like that time is now. But the reality of the current law is not so clear-cut.
Congress‟ failure to pass legislation
before the tax expired this year, and the possibility thatan estate tax will be retroactively reinstated, is certainly a cause of confusion and anxiety foranyone dealing with the death of a family member. Even if you are relatively young and healthy,you may be wondering what effect current or future rules may have on your estate.
No one can predict when Congress will act or what rules will apply. “
Most people believe therewill
be some form of estate tax going forward,” says Dan Prebish, attorney in the Key Clients
“The consensus is that the federal exemption, the value an estate mustexceed before it‟s subject to estate taxes, will probably be within the $2 mil
lion to $5 million
range. But it just as easily could go back to $1 million.”
To help you navigate this uncertain time, h
ere‟s what you need to know now about current
estate tax rules and how to plan for possible reinstatement of the tax:
Consider your goals
. If you already have an estate plan and no significant health risks, nowmay be a good time to clarify your goals and consider how you want your financial success toaffect your heirs.Think about:
What is your ideal plan with and without an estate tax?
Would you rather your heirs receive a lump-sum inheritance or would they be better offwith a lifetime of secure income?
Do you want to maximize the amount transferred to your family members or do you whatto give them only what is left after
you‟ve taken care of your financial needs? Or is your
goal somewhere in between?People at a significant risk of death due to advanced age or fragile health should consult withtheir attorneys.
Those wills and trusts probably were not written to account for estate taxrepeal, retroactive reinstatement or modified carryover
instead of „step
,” Prebish says.
refers to the new cost basis assigned to assets equal to their fair-market valueat death. It has been replaced with modified carryover basis for 2010 only. Under this rule, an
executor can exclude unrealized gain of up to $1.3 million (or $4.3 million for assetspassing to a surviving spouse). Only a small fraction of estates will exceed this exemption,which will probably change again when an estate tax is reinstated. Keeping good records is key.
Enlist your financial advisor‟s help to track of the value of
your assets, especially those boughtor inherited some time ago.
Build a net worth statement.
Work with your financial advisor on a summary of your new worthand review your life insurance so you are prepared to evaluate your situation as soon asCongress resolves the tax issue.
Some people who have life insurance in an irrevocable trust,