For most Americans estate planning has always been somewhat confusing. The 2010 Tax Relief Act has elevated this confusion to new heights.
There are two estate tax rules for 2010. The default rule imposes a tax rate of 35% and with an exemption of $5 million for individuals ($10 million for married couples). The basis of property acquired from a decedent is stepped-up to the market value at the date of death. Under the alternative rule, there is no estate tax for decedents who died in 2010. This rule requires an election by the executor. If the executor makes this election, assets in the estate will receive modified carryover basis. Carry-over basis means the basis of inherited property remains the same as it was for the decedent, which potentially creates a tax liability to the heirs when the property is sold.
In 2011, the estate tax exemption is $5 million for individuals. The gift tax exemption has increased from $1 million in 2010 to $5 million in 2011. In 2011, the estate tax and gift tax exemptions are portable between married couples. Portability was not available in 2010. These changes will expire at the end of 2012.
In my next blog I will cover some estate planning tips.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).