The government recently eliminated the estate tax for the entire year of 2010. Effective January 1, no federal estate tax or generation-skipping taxes (GST) will be imposed upon individuals who pass away in 2010. Both federal estate taxes and GST taxes are to be reinstated in 2011, and there will be a $1 million exemption (for GST taxes) and a maximum federal tax rate of 55 percent. The million dollar exemption is less than the maximum exemption in 2009, which guaranteed a $3.5 million exemption. What this means is that there will be many more estates subject to estate tax in 2011.
While the current relief from estate taxes seems promising, the estates of those who pass away before the end of the year may not be given to their heirs free and clear. In fact, Congress may have the ability to reinstate estate taxes for this year and make them retroactive to January 1, 2010. If this happens, Congress may impose the rates from 2009 or they may increase these rates.
These changes in the estate tax law may significantly impact your estate planning documents. To learn more about how the change in estate tax affects you and your family, contact a lawyer who specializes in estate planning.