This post is provided by attorney Alan Macpherson and his colleagues of the Trusts & Estates Group at Gordon Thomas Honeywell LLP.
After almost a full year of complete uncertainty about the estate tax, Congress abruptly adopted a bill in December. Here’s a quick recap:
1. The new law is good for just two years.
2. The Federal exemption is now $5 million per estate. The maximum estate tax rate is 35%.
3. We still have a Washington state estate tax, with an exemption of $2 million per estate. The maximum estate tax rate is 19%.
4. A surviving spouse inherits the unused exemption of the deceased spouse. So if our friend Lars leaves all his estate outright to wife Kyra and so uses none of his exemption, Kyra’s estate has Lars’s exemption as well as her own. You’ll hear this referred to as “portability” of the exemption.
5. Despite #4 just above, there are still a couple of good reasons to place Lars’s estate in trust for Kyra rather than giving it to her outright. It can preserve the Washington exemption of the first estate. And it can lessen the chance Kyra’s next beau will end up with the fruits of Lars’s labor. Hey, nothing sexist here—it works the other way around too, and it’s our observation that men are more vulnerable than women when left alone.
6. There is still a tax on generation-skipping transfers (GST), but only to the extent they exceed the $5 million GST exemption.
7. There is still an annual gift tax exclusion—$13,000 per giver per recipient is completely tax-free.
8. The lifetime gift tax exemption, for amounts given in excess of the annual exclusion, has been increased from $1 million to $5 million.
9. An estate and its heirs still get a full step-up in income tax basis, for all but a few selected assets like retirement accounts, installment contracts, and annuities.
10. There are other income tax benefits, mainly extension of the maximum 15% rate on capital gains, and of the maximum 35% income tax rate.
For more information, please contact Alan Macpherson at email@example.com, or 253-620-6468.