2010 A Good Year to Die?

2010 – A Good Year to Die?

One Year Repeal of the Federal Estate Tax

The answer, if you are really tax adverse, is maybe. Do you remember the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA")? (It seems so long ago). Well, EGTRRA lives on and provides that there is no federal estate tax for people who die in 2010. Imagine that – no federal estate tax in 2010. This also means that there is no need to file a federal estate tax return (Form 706) for people who die in 2010.

This is not as simple as it seems. First, the New Jersey estate tax is still applies to decedents with an adjusted gross estate in excess of $675,000.00. Second, the repeal of the federal estate tax probably only has significance for single persons or surviving spouses? Why, because there is a complete marital deduction for assets passing to a surviving spouse, so assuming that a couple has a proper estate plan, the liability for estate taxes is only incurred upon the death of the spouse. And a single person, by definition, can’t take advantage of the marital deduction.

The IRS and most estate planners believe that the federal estate tax will be reinstated in 2011. The real question is at what level? Brad Denn, a CPA/PFS and tax planner with the accounting firm of Padden Cooper Lawson Denn Drewry, LLC in Medford Brad@taxcenter.com , tells us that while many professionals believed that the renewed tax exemption amount would be in the area of $3.5M to $5M, there is increasing thought that the exemption may be as low as $1M, which obviously increases the number of estates susceptible to the federal tax. The outcome of the November mid-term election will certainly have an impact on Congress’ decision.
Gifting Increases in 2010.

EGTRRA does not repeal the gift tax. Transfers of property in 2010 may be subject to the federal gift tax. Donors are still allowed a lifetime $1 million exemption, as well as an annual exclusion of $13,000.00. EGTRRA does, however, reduce the maximum tax rate for a taxable gift made in 2010 to 35% (down from 45% in 2009). Brad Denn says that there is trend by high net worth folks to make sizable gifts because they see the 35% rate expiring in 2011. If you are in that fortunate situation, now may be the time to consider reducing your estate’s tax exposure by lifetime transfers.

We will keep you posted about these important issues.

-Tom Barron

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