Issues to Consider Over the Next Two Years

Under the new tax bill, less than .5% of people who die in 2011 will owe estate taxes. But that doesn’t mean that the wealthy can ignore short-term issues over the next two years. A few of the most important ones are below:

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    • A couple who has given away gifts up to the $2 million limit already now has two years to give away an additional $8 million free of tax. Further, people can use GRATs or intentionally defective grantor trusts to turn that $8 million into a $50 million transfer tax-free.
    • People should still properly plan what they want to happen to their assets. Aside from minimizing taxes, there are other reasons to leave assets in trust, such as beneficiary competency and remarriage.
    • The new bill gives heirs of those who died this year two options. First, they can elect to have the 2011 estate tax apply and pay taxes on the amount above $5 million. Alternatively, they can elect to not pay the estate tax but calculate capital gains, using the decedent’s basis rather than a stepped-up basis. If one opts for this carryover basis, there is a chance that carryover basis applies only to assets sold in 2010 due to the wording of EGTRRA. It’s possible that inheritors who hold on to assets until 2011 may be able to escape the carryover rules. However, “[n]avigating these uncharted waters is not likely to be a joy ride.”

Deborah L. Jacobs, Congress’ Gift to Billionaire Heirs and Those Who Envy Them, Forbes, Dec. 17, 2010. See also Paul Sullivan, Estate Tax Will Return Next Year, but Few Will Pay It, N.Y. Times, Dec. 17, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) and Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this to my attention.