Tax Deal May Actually Benefit Wealthy More Than the 2010 Estate Tax Lapse

Although there were no estate taxes in 2010, 2011 might be an even better year for wealthy families if the tax deal passes. This is because for a family to benefit from the estate tax lapse, a loved one had to die. In 2010, a living rich person can only transfer $1 million to children or grandchildren without owing a gift or GST tax. In 2011, the exemptions from the gift tax, estate tax, and GST tax will all rise in tandem to $5 million.

In addition, the tax deal does not place any restrictions on GRATs, as was expected. With a $5 million exemption and no new restrictions on estate planning techniques, an enormous amount of money can be shifted.

Finally, the ability to make large gifts federally tax free enables families to reduce state estate tax bills by transferring the wealth prior to death.

Columbia Law Professor Michael Graetz stated, “This is better than 2010, because you can avoid estate taxes and you don’t have to die to do it.”

Janet Novack, Under Obama Tax Deal, 2011 Could be Best Year for the Rich, Forbes, Dec. 12, 2010.