Family Estate Planning – Favorably High Tax Exemptions to Expire in 2012

12/06/11

At the beginning of 2011, important changes were made to the way gifts made during life and at death were taxed. Under current law, the amount each person can give cumulatively during their lifetime and upon their death without being subject to tax was $5,000,000. In 2012, that exemption amount will increase to $5,120,000. (It should be noted that this tax exemption is in addition to the annual exclusion from gift tax which is $13,000, that gifts to spouses are generally not taxed and that a surviving spouse may be able to use the unused exemption amount of a deceased spouse.) The estate and gift tax rate for transfers above the exemption amount also changed to 35%. The high exemption amounts expire on December 31, 2012 with the basic exemption amount falling to $1,000,000, the rate rising to 55% and no sharing of a spouse’s exemption. Will we see new legislation enacted before the $1,000,000 exemption comes back? 2012 is an election year and tax reform is already a hot topic with many proposals floating about. Anyone considering making large lifetime gifts should do so sooner rather than later to take advantage of what may turn out to be historic and temporary high exemption levels and low rates.

For more information regarding these laws, or for assistance with estate and tax planning, please contact Dickenson, Peatman & Fogarty at [email protected].

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]