Estate Planning in 2011/2012
For virtually all of 2010 there was a great deal of uncertainty as to the status of the Federal estate tax. On January 1, 2010 the Federal estate tax was repealed in its entirety. As is explained in more in the article on Tax and Estate Planning After the "Repeal" of the Estate Tax, the Federal estate tax law was to be repealed as of January 1, 2010, but if Congress did nothing, in 2011 the "old" Federal estate tax law would have come back into place with the exemption dropping back to only $1,000,000 (with the top marginal estate tax bracket increasing from its present 45% rate to 55%).
In December 2010, Congress finally acted. The Federal estate tax law was reinstated as of January 1, 2011, but with the exemption being increased to $5,000,000. The other significant change is that the top marginal bracket has been reduced to only 35%. While these changes are good news for many people with potentially taxable estates, the bad news is that these changes are only in effect for 2011 and 2012. After that, it remains to be seen what will happen.
While there still is a certain amount of uncertainty of the status of the Federal estate tax (as the recent changes are certain to be in effect only through 2012), it remains important to address one's estate planning issues. Of course, for many people, estate planning is a not exactly a "hot" topic. After all, planning for one's demise is not the most pleasant matter to address. As a result, many people procrastinate when it comes to getting their affairs in order. Recent events may give people even more reason to put off planning. With the recent downturn of the economy, the values of retirement accounts, investments and real estate have dropped significantly. Some will use that drop in value to justify putting off estate planning. The fact of the matter is that estate planning remains an important topic for everyone.
Estate planning fundamentally involves planning on how your assets should be disposed of. While minimizing estate taxes should be part of any good estate plan, taxes are not the only concern. Making sure that your assets pass to those family members, friends, and/or charities in the manner that you wish should be the paramount concern. If your goals for disposing of your assets can be accomplished while minimizing estate taxes, even better.
Regardless of what happens with the Federal estate tax law, one must still contend with state estate tax issues. Many states, Massachusetts being one of them, have enacted their own separate estate tax. See the article on The "New" Massachusetts Estate Tax. The Massachusetts estate tax exemption is only $1,000,000. If the total value of your estate exceeds this latter amount, a Massachusetts estate tax may be due. Keep in mind also that while the effective maximum tax rate in Massachusetts is only 16%, the Massachusetts tax is actually assessed on the entire value of one's estate, not just the excess over $1,000,000.
While more changes to the estate tax laws may be forthcoming, postponing addressing your estate planning objectives is never a good idea. An estate plan should evolve over time, be reviewed periodically, and revised from time to time.