The Golden Era of Wealth Transfer

When the estate tax exemption was $3.5 million in 2009, only 5,500 estates paid taxes. If the exemption reverts back to $1 million in 2011, more than 44,000 estates will pay taxes.

In addition to taxing more money and more families, Congress is also making it harder to use estate planning techniques to minimize the taxes. The following estate planning techniques face changes:

• Gifts. While people may decide to give more inter vivos gifts in order to avoid estate taxes, the gift tax rate, which is currently 35%, will be raised to 55% in 2011.
• GRATs. If the Senate passes H.R. 4849, the IRS would have a chance to monitor all GRATs, and they will no longer be as effective in minimizing the gift tax. 
• FLPs. The IRS has been attacking Family Limited Partnerships for more than ten years, and restrictions could substantially reduce their tax-saving qualities.

With a decrease in the estate tax exemption and fewer ways to avoid estate and gift taxes, “the past decade may come to be looked upon as the golden era of wealth transfer.”    Deborah L. Jacobs, Estate Tax Could Come Back with Sharp Bite, Forbes, April 18, 2010.