I hope that you had a great summer! I am writing to give you an update on the estate planning world as we approach the end of the year, the scheduled expiration of the current estate tax law, and a presidential election. Next year is likely to be one with significant changes in tax law. And it is important not to let this year go by without considering taking action on some very beneficial laws and estate planning strategies that may or may not be available to taxpayers in the future.


As you may remember, in December of 2010 a new federal estate and gift tax law referred to as the Tax Relief Act of 2010 (“TRA”) was signed into law. Under the TRA, the estate and gift tax exemptions (the amount of assets that an individual may pass at death or by lifetime gifts without incurring a tax) were set at $5.0 million per individual (transfers to spouses are not generally taxable). Any amount passed at death or by lifetime gift in excess of that amount (as adjusted for inflation) is subject to a federal tax of 35%. Remember that death benefits under life insurance policies and the value of retirement account are part of your taxable estate.

TRA also introduced “portability” of the estate tax exemption from a deceased spouse to a surviving spouse. Essentially what portability means is that if one spouse dies and does not use all of his or her estate tax exemption, the survivor may use the deceased spouse’s unused exemption amount at the time of the survivor’s death. However, relying on portability can produce unintended consequences including higher effective taxes.

Also, there is an unlimited marital deduction for transfers between spouses. This means that one spouse may transfer to another spouse, during life or at death, an unlimited amount of assets without incurring a tax. As with portability, relying on the unlimited marital deduction may result in more taxes being paid upon the death of the second spouse to die.


Unfortunately, if there is no new legislation, the TRA is set to expire at the end of this year. And effective January 1, 2013 the estate and gift tax exemptions are scheduled to be only $1.0 million (as adjusted for inflation) with a tax rate of 55% applying to transfers in excess of that amount.

Again, remember that death benefits under life insurance policies and the value of retirement accounts are part of your taxable estate.

Additionally, the President and members of Congress have proposed a range of ideas to address the current estate and gift tax situation including extending the TRA, an estate and gift tax exemption of $3.5 million, allowing TRA to lapse, or eliminating the state and gift taxes altogether. Given past history and the fact that this is a presidential election year, the final outcome of this discussion is anyone’s guess.


If you are contemplating the transfer, by gift or by sale, of ownership of your business (or any interest in it) you should have the intended transfer reviewed in the light of your entire estate and your current estate plan documents. When properly handled, the transfer of business interests may provide significant planning opportunities.


The gift tax annual exclusion amount is the amount that you may transfer by lifetime gift to an unlimited number of recipients without incurring a tax (or tax reporting requirement). For 2012, the annual exclusion is $13,000.

The generation skipping transfer tax (GSTT) is a federal tax, in addition to the estate and gift tax, which may be assessed on transfers of assets to grandchildren (or individuals more than 37 ½ years younger than the donor of the gift). For 2012 the GSTT exemption is approximately $5.1 million, with a tax rate of 35% (in addition to the estate and gift taxes) applying to generation skipping transfers in excess of $5.1 million. As of January 1, 2013, the GSTT rate is scheduled to be 55% and the GSTT exemption is scheduled to drop to approximately $1.4 million.

As always, there are a variety of charitable planning techniques, which we may employ in order to transfer assets to your intended beneficiaries and provide lifetime income tax savings to you while benefiting a charity, as well.

If you plan to make annual exclusion gifts, generation skipping gifts or charitable donations, this year or in the near future, we should discuss your intentions to make sure that the gifts are made in the most efficient and tax advantaged manner.


Given all of the confusion and uncertainty in the tax world and if you have not had your estate plan reviewed in the last 24 months, it is now a good time to do so in order to make sure that you do not miss out on the benefits of the current law and to ensure that your plan will function as intended in any of the possible scenarios described above.

Also, you should have your plan reviewed if any of the following has occurred: your financial situation has changed for better or worse; if you or a family member has gotten married or divorced; if there has been a birth or adoption in the family; if there has been a death in the family or of a beneficiary or named fiduciary under your current estate plan documents; if you have sold your business (or are intending to do so in the next five years); or if you have retired or plan to do so in the near future.

Please call me or send me an email if you would like to discuss potential planning options which may benefit you and your family for generations to come.