LEX VINI

New Estate and Gift Tax Will Impact Family-Owned Wineries

01/14/11

On December 17, 2010, President Obama signed into law a temporary, 2-year tax compromise hammered out in Congress during the so-called “lame duck” session. The transfer tax highlights include:

Ø Lifetime estate and gift tax exemption reunified and increased to $5 million per individual ($10 million per married couple)

Ø Estate tax rate reduced from 45% to 35%

Ø Generation-skipping tax exemption increased to $5 million ($10 million/couple)

Ø Reinstatement of full basis adjustment to fair market value at death

Ø Optional estate tax retroactivity for 2010 decedents

Ø Transfer of spouse’s unused exemption at death (“portability”)

Portability is a new concept intended to simplify estate planning for married couples by allowing full use of $10 million worth of exemption without complex trust planning. Some couples may benefit from amending their living trusts to eliminate complex “A-B” or “A-B-C” structures. Unfortunately, portability may lull some couples into doing no estate planning at all. Relying on portability may be inappropriate for spouses who are in second marriages, have different ultimate beneficiaries, wish to keep assets in trust for creditor protection or asset management, or who have done no planning and may still need living trusts, wills, powers of attorney, guardian nominations, etc. In many cases, portability will make post-death administration more complex and expensive than would be the case otherwise because an estate tax return must be filed to preserve a deceased spouse’s unused exemption, even for non-taxable estates.

For more information on these issues contact Dave Diamond in our Napa office at [email protected], or Susan Teel in our Santa Rosa office at [email protected]