By now everyone knows that the President has signed a tax bill.  The question now on everyone’s mind is exactly what did he sign, and what does it mean to you?

  • Lower payroll taxes in 2011 and the historically low rates of taxes on dividends are good for all of us (not so good for our children and grandchildren, but that’s rant for another day).
  • A 2 year estate tax law will allow the debate to be re-opened during the 2012 Presidential election campaign, but if no new compromise is reached, the rate of taxation will return to the 2001 level of 55% on most estates, 60% on others, and the exemption amount will return to $1,000,000.
  • The estates of decedents dying in 2010 can elect either the new 2011 tax system or the 2010 tax system with a carryover basis.  This corrects a basic inequity that created a notch problem for estates greater than 1.3 million dollars, but less than 3 million dollars.
  • A maximum rate of 35% on both estates and gifts reduces the impact on many estates, but it remains an issue to be considered in planning.
  • For decedents dying in 2011 or 2012, the exemption amount is $5,000,000.
  • For the first time a concept known as “portability” has been introduced which means that a surviving spouse will pay no estate tax as long the survivor’s total estate is less than $10,000,000.  Although this seemingly simplifies planning for couples with a gross estate of more than 5 but less than 10 million dollars, it unfortunately acts as a disincentive for those families and others to complete comprehensive planning that can confer far greater legacy and tax benefits than the default plan.
  • Also for the first time since 2004, the gift tax exemption and estate tax exemption have been reunified, allowing lifetime gifts up to 5 million dollars per person.  For many families this will present unique gifting opportunities that should be completed in the next 2 years.
  • New rules for generation skipping transfers (GST) clarify how 2010 gifts can be handled; guidance that was sorely lacking and created great uncertainty for many families that wanted to make gifts in trusts for grandchildren.  Increased exemption amounts will allow significant amounts of money to reach dynasty trusts at considerable benefit for long term planning.  The gifting and GST rule changes were perhaps the most unexpected and create the greatest opportunities for future tax savings.

Without a crystal ball no one can predict what all this means for 2013 and beyond, but undoubtedly you will hear of many plans and opportunities in the weeks and months to come.  With the lowest income tax rates in a generation and the highest deficits and debts in the history of our country driven by the ever growing entitlement programs and the loss of good middle class manufacturing jobs, it is a near certainty that the new favorable system will be under attack again in 2012.

Look for news of upcoming live presentations I will be giving to answer questions and describe some forward thinking that will keep you informed of what you should or shouldn’t be concerned about in the near term.

This will be my last post for 2010.  Happy holidays to everyone and a prosperous and well planned new year!