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Summer 2010

The Bush-era tax cuts led us to the unimaginable this year – a temporary repeal of the federal estate tax. If Congress fails to act by Dec. 31st, the 2001 Tax Act will “sunset” (expire) and the estate tax rate that existed in 2001 will take effect again. The result would be an estate tax rate that reverts to 55% with a $1 million exemption. As the summer comes to an end, there is still plenty of uncertainty surrounding the estate tax. 
Yet, a picture of what will happen next year is starting to emerge. Last month, Sens. Jon Kyl, R-Ariz. and Blanche Lincoln, D-Ark. offered a proposal to set the estate tax rate at 35% permanently and eventually allow a $5 million exemption. The House passed a bill late last year that would permanently set the estate tax rate at 45% with a $3.5 million exemption. 
Sens. Kyl and Lincoln hoped to attach their provision to a recent small business-lending bill that has stalled for now because it fell short of the 60-vote threshold required to beat back a filibuster. Still, the Kyl-Lincoln proposal will likely shape what’s ahead for a revamped estate tax system.
Observers on Capitol Hill tend to agree that Congress won’t let the estate tax exemption revert to $1 million. In states like California, Connecticut and New York – home to six Democratic senators – many estates have soared past the $1 million threshold because of huge appreciation over the past few decades. Returning to the $1 million exemption would make it harder for such incumbents to garner continued support from their wealthy constituents. 

There are several gift and estate planning opportunities to consider before the entire law sunsets at the end of this year. Here are four (4) things that you or family members should be thinking about while it is still 2010:

1. Review all estate plans as well as nuptial agreements with your estate attorney. As a result of having no estate tax this year, you may need to change formula clauses in order to avoid unintentionally overfunding your credit shelter trust and underfunding what’s left to your spouse. 

2. Consider making taxable gifts while there is still a 35% rate. Congress did NOT repeal the federal gift tax. Gifts of more than $1,000,000 will be taxed, regardless of the fact that there is no estate tax this year. The gift tax rate equals the highest individual income tax rate (currently 35% this year). Gift and estate tax rates will climb higher if Congress does not act before Dec. 31st. 

3. Review existing life insurance trusts. Now is a good time to evaluate these policies in trust to ensure that they’re performing in line with expectations. If the exemption levels revert to $1 million, more families will want to consider making gifts of premiums to life insurance trusts to help pay for these transfer taxes. Remember, this year you can gift up to $13,000 per beneficiary under the so-called “annual exclusion” limits, and only after exceeding $1 million, are you then subject to gift taxes.

4. Consider selling appreciated assets in 2010 and recognizing gains at 15%. Capital gains rates are rising to 20% in 2011 and 23.8% in 2013. 

For more information about this article or any of the concepts discussed, products and/or services, please contact our office at 561-276-8710 or visit our website at

Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as an (insurance professional, financial planner, investment advisor, securities broker).