Estate Planning Law Alerts

December 1st, 2010

2010 Year End Estate Planning

The end of 2010 brings more than the usual range of estate planning opportunities.As year-end approaches, so does the expiration of the Bush era tax cuts. The lame duck Congress' willingness to enact tax legislation before 2011 looks increasingly unlikely.

Under current law, the Federal estate tax is repealed for the year 2010, and is reinstated as of January 1, 2011, with an exemption of $1,000,000 and a top rate of 55%. The Federal gift tax is imposed in 2010 at a stated rate of 35%, with an exemption of $1,000,000. In 2011, it increases to the estate tax rates. The generation-skipping transfer (GST) tax, which applies to transfers to grandchildren, is also repealed for the year 2010 and reinstated in 2011.

At the same time, interest rates continue to be low, and the slow economic recovery continues to suppress asset values. The rate of return used by the IRS to value interests in trusts has dropped to an historic low of 1.8% in December of 2010.

Estate planning strategies to consider in the remaining weeks of the year include:

  • Annual exclusion gifts of $13,000 per donee in 2010 and 2011
  • Substantial gifts that take advantage of the historically low gift tax rate in 2010
  • Direct transfers to grandchildren in 2010 to avoid the GST tax
  • Grantor Retained Annuity Trusts (GRATs) to take advantage of low interest rates in transferring appreciation to your heirs
  • Charitable Lead Trusts (CLTs) to benefit charity and transfer appreciation to your heirs
  • Sales to Intentionally Defective Grantor Trusts (IDGTs) to take advantage of low interest rates in freezing the value at which assets are transferred

Heading into 2011, the reinstatement of the estate tax with a smaller exemption and a higher tax rate provides good reason to review your estate plan. Life insurance as an option to meet the tax burden and liquidity needs will become increasingly attractive.

If you have questions about these planning ideas, please contact Barbara Shiers at bshiers@fkks.com or (212) 826 5526, Linda Wank at lwank@fkks.com or (212) 826 5546, or any other member of the Frankfurt Kurnit Estate Planning and Administration Group.