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The Obama Administration's Impact on Your Estate Plans
Regardless of your political persuasion, what happens in Washington does have an impact on your estate plans here in California. Thus, it is essential to make sure your estate plans remain current in light of the changes in federal and state tax laws.
In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act. This law established our current 2010 federal estate and gift tax rates and exemptions. The purpose of the bill was to gradually decrease estate taxes from 2001 – 2009. There is no federal estate tax or gift tax in 2010. However, experts do not believe that Congress will repeal the estate tax and gift tax for years to come, especially considering the Nation’s ballooning deficit, wars abroad, the Nation’s multi-billion dollar stimulus package and proposed healthcare reform.
Many experts estimate that estate taxes will be elevated to the Clinton era rates in 2011 and beyond. Thus, in 2011, the first $1 million in your estate is exempted from taxation. The remaining estate is taxed at 55%.
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As this simple example illustrates, the results can be alarming. If your estate is valued at $3 million dollars, in 2010, you would pay no federal estate tax and your assets would pass to your beneficiaries as directed under your plans. California does not impose an estate tax upon death. However, in 2011, under the proposed Obama administration plan, only the first $1 million of your estate will be exempted from taxation. The remaining $2 million dollars would be taxed at a 55% rate. Thus, you would pay $1,100,000 in taxes and your beneficiaries would receive only $900,000.
Proper estate planning can significantly reduce the amount of estate taxes you may be subject to when you die. After all, you work hard for you money. Wouldn’t you rather leave your money to your family, rather than to the government?
IRS Circular 230 Notice: Any tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed by any governmental taxing authority or agency or promoting, marketing or recommending to another person any tax related matter.
Sommer C. Horton is an associate at Neil Dymott and concentrates her practice on estate planning, trust administration and probate. Ms. Horton may be reached at (619) 238-2238 or shorton@neildymott.com