Sunday, February 14, 2010

It's a Good Year to Be Generous (at least as far as Estate Taxes)

Interesting note in this morning's New York Times:
February 14, 2010

That Fog Still Hasn’t Lifted From the Estate Tax

THE estate tax isn’t dead. It’s resting.

The tax has been eliminated for 2010, but the estates of people who die before the year is out may still not pass free and clear to their heirs. The complexities of the tax system and the likely return of the estate tax next year — maybe even sooner — are creating confusion for accountants, lawyers and many families.

Possibly greater expense, too, and not just for the wealthy. Odd as it may seem, tax specialists caution, the absence of an estate tax could result in greater liability on smaller fortunes than on bigger ones.

Say that someone worth $10 million dies on Dec. 31 this year. Because there is currently no estate tax for this tax year, the beneficiaries divide the whole amount, although they may also inherit liability for capital gains tax on some of the assets.

But what if the person in this example doesn’t die until Jan. 1, 2011 — when the estate, apart from a $1 million exemption, is due to be taxed at 55 percent? There will be a lot less to share.


Whatever the legal backdrop, what can people do to ensure that the greatest amount of wealth possible goes to heirs and not to the Treasury? A few steps might put the odds more in their favor.

“Give gifts as much as you can this year,” Mr. Shane suggested. “You want to give as much to the kids and grandkids this year as possible.”

Gift givers will be taxed at 35 percent this year and probably 55 percent in 2011. As with the estate tax, exemptions apply. You can give up to $13,000 per recipient this year before the tax kicks in, up to a $1 million lifetime exemption.