As we start to settle into 2011 the details of the new tax legislation that was passed into law in the middle of December are starting to become more clear. To look back at the path that we took to get to this point, the estate tax was repealed for 2010 but was scheduled to reappear in 2011.Though a permanent repeal would’ve been welcome in many quarters, it wasn’t the return of the tax that captured people’s attention as much as the scheduled parameters of the tax.
From 2006 through 2008 the estate tax exclusion was consistent at $2 million. In 2009 the exclusion was $3.5 million and as mentioned, the tax was repealed for 2010. So from 2006 through 2010, if your estate was valued at $2 million or less it was not subject to the estate tax. But as the law stood throughout most of 2010 the estate tax was to return in 2011 with an exclusion that had been reduced to just $1 million. As you might imagine, this was viewed as unacceptable to many people.
Fortunately, some of the people that found this to be unacceptable held seats in the United States legislature. Ultimately a tax relief bill was passed and signed into law on December 17th of 2010 that raised the estate tax exclusion to $5 million for individuals and reduced the rate of the tax to 35% from the 55% that had been scheduled.
These are the headlines, but we would like to pass along something that is contained in the fine print as it were. In previous years your estate tax exclusion died when you did. If you take 2009 as an example when the estate tax exclusion was $2.5 million, a married couple had a total exclusion of $5 million between them. But if one of them was to pass away, the surviving spouse would lose that additional exclusion and be left with just the individual exclusion of $2.5 million.
Under provisions of the new law this is no longer the case. The exclusion is now considered to be portable, which means that the surviving spouse can indeed use the exclusion of his or her deceased spouse – that is, so long as both spouses die in 2012-2013. An interesting requirement indeed.