Tulsa Business Journal
By Cynda Ottaway
Feb. 15, 2010
As has been widely reported, the Federal Estate Tax and Generation-Skipping Tax expired Jan. 1. If Congress fails to make a change during 2010, the federal estate exemtion will be restored at the level of $1 million as of Jan. 1, 2011.
What Congress will do and whether it will be retroactive to Jan. 1, 2010, is impossible to predict. While we wait to see if and when Congress acts, taxpayers should consider the following:
Existing plan for married couples: Many of the wills and revocable trusts drafted in the past for married couples have provisions with a formula for division of assets between a marital trust (Trust A) and credit shelter trust (Trust B) upon the death of the first spouse. These plans use formulas referring to estate tax terms or generation-skipping tax terms that no longer exist. The repeal of these provisions could impact your intended plan if a death occurs in 2010.
Charitable planning: If your estate plan includes any charitable gifts involving tax formulas, you should review your documents to see whether revisions need to be made.
Generation-skipping trusts: If you have been making transfers to a trust for grandchildren for which you have been allocating generation-skipping exemption, you may want to make this year’s gifts outright to grandchildren rather than to a trust. If the trust needs cash, consider a loan for this year.
Gift tax: The gift tax rate drops to 35 percent, but making taxable gifts during this period of no estate tax could be risky. The lifetime gift exemption remains at $1 million, and the annual exclusion amount for tax-free gifts is $13,000 per person.
Maintain all tax records: The current law requires what is known as “carryover basis” if a death occurs during 2010. This means that your heirs would not receive a stepped-up basis to the value at date of death. Instead, the heirs would need to determine the original income tax basis for all assets of a decedent dying during 2010. Historical records will be important. There are some exceptions that will involve allocating a limited amount of stepped-up basis, and this will require careful planning if a death occurs in 2010.
Personal factors: Your personal, financial and family situations, including age and/or health considerations, will likely affect whether you should make any changes to your existing estate plan based on the current uncertainty about the tax law.
These are some points that will affect the majority of taxpayers, but they do not attempt to address specifics. Consult your personal adviser to discuss what changes, if any, you should make during 2010.
Cynda Ottaway is a director with Crowe & Dunlevy law firm. Her practice focuses on estate planning, trust and estate administration and litigation and planning for family businesses.