As any seasoned estate planner knows, it’s crucial to learn of all your client’s assets before developing a comprehensive plan. This is particularly important when it comes to out-of-state real property, which may be subject to that state’s potential inheritance or estate tax if left unaccounted. Add the costs and headaches of an ancillary probate, and your client’s loved ones will be left wishing for a better way. Lucky for you (and them), there is!
Beginning in 2011, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (.pdf) (Pub L 111–312, 124 Stat 3296) eliminates the separate $1 million lifetime gift exemption. Donors can now make taxable gifts up to the estate tax applicable exclusion amount of $5 million with no gift tax.
Annual exclusion gifts don’t count. Donors can still give up to $13,000 per year per donee ($26,000 for married couples) free of estate and gift tax.
Beware! The estate tax law “sunsets” on December 31, 2012. Unless the law is further amended in the meantime, the exclusion reverts to $1 million in 2013. Lifetime gifts in excess of that amount would then be subject to estate tax in the donor’s estate, even if there was no gift tax when the gift was made.
Of course, that may not happen. But for now—until the law is made permanent—donors may be well advised to limit taxable gifts to $1 million. In other words, the more things change, the more they stay the same.
The Act is briefly summarized in the December 2010 issue of the CEB Estate Planning and California Probate Reporter, and will be discussed in greater detail in the forthcoming February issue and at the Estate Planning and Administration: 26th Annual Recent Developments program to be presented at five locations around the state January 21 through January 28, available soon as On Demand.
Tax elections and reporting requirements for estates of decedents dying in 2010 and 2011 are discussed in the March 2011 update of California Trust Administration, chaps 12–14. Planning implications of the Act will be discussed in the April 2011 update of California Estate Planning.
© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.
The estate tax is repealed for estates of decedents dying in 2010, but the gift tax remains in effect for lifetime gifts in excess of $1 million. Under current law, any transfer in trust is treated as a transfer of property by gift, unless the trust is a grantor trust for income tax purposes—including transfers that are incomplete gifts for gift tax purposes. See IRC §2511(c).
Some practitioners fear that §2511(c) could be construed as treating an entire transfer to a charitable remainder trust as a gift—including the annuity or unitrust interest retained by the donor. This is an absurd result from a tax perspective, and practitioners expect the issue to be resolved soon. But until it’s resolved, steer clear of charitable remainder trusts in which the donor retains the annuity or unitrust interest.
For more on charitable remainder trusts, see Drafting California Irrevocable Trusts, chap 18 (3d ed Cal CEB 1997).
© The Regents of the University of California, 2010. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.