The legislation that made its way through Congress in the middle of December brought a number of positive changes with it, and some of them had a profound impact on the field of estate planning. The most important provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 from an estate planning perspective involve the rate of the tax and the amount of the exclusion.
Prior to the passage of this measure the estate tax exclusion was scheduled to be reduced down to just $1 million and the rate of the tax was set to come in at an astonishing 55%. As a result of this new legislation, going forward in 2011 and 2012 the estate tax exclusion is going to be $5 million and the rate of the tax will be 35%.
How anyone could feel as though it is fair to impose a death levy that takes more than it leaves behind is hard to fathom, so these changes were certainly a step in the right direction. But in addition to these major changes there were some lesser publicized alterations to the laws that impact estate planning as well. One of these involves the portability of the estate tax exclusion.
In an estate planning context the term “portability” refers to the ability to utilize the exclusion of a deceased spouse. Previous to the passage of this measure the estate tax exclusion was not portable, meaning that if you were to pass away your spouse could not use your individual estate tax exemption.
Due to a provision contained in this new tax relief act the estate tax exclusion is now portable, which can have some implications with regard to the necessity of bypass trusts. If your estate plan was constructed prior to the passage of this law it may be a good idea to consult with your estate planning attorney to see if any adjustments may be prudent.