When you are concerned about maximizing the value of your assets as you make preparations to pass them on to your loved ones it is important to recognize the looming estate tax changes that are coming into effect in 2011. In 2001 there was a wide reaching tax act passed, and at that time it was decided that the estate tax would be repealed in 2010, and this was good news to most of us. In fact, there is a very good argument for a permanent repeal of this tax. After all, the typical top rate is in the vicinity of 50%, and it is pretty hard to justify a tax on your estate that consumes half of its total value.
Unfortunately, however, this repeal is in effect for just the one year. Unless new legislation is passed, in 2011 the estate tax will resume, and the top rate of taxation will revert back to the level that it stood at in 2001, which is an eye popping 55%. By comparison, it stood at 45% in 2009. In addition, the exclusion amount in 2011 has been dropped back down to $1 million, which is what it was in 2002. The exclusion amount in 2009 was $3.5 million, so anyone whose estate is worth more than $1 million and less than $3.5 million is standing on a significantly different playing field in 2011.
If you have an estate plan in place that was constructed under the assumption that the exemption amount would be at least $2 million (which is what it was between 2006 and 2008) you may want to take a long look at the current value of your assets. Few of us relish the thought of our heirs losing half the value of their inheritances to the tax man, so it may be a good time to revisit your estate plan with these new parameters in mind.
Alan Augulis, Estate Planning Attorney
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