The current year has been and still is a chaotic year in the area of estate planning. Currently, there is no federal estate tax. And, what will ultimately happen to the federal estate tax is still unknown.
How did we get here?
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provided that the federal estate tax would be repealed in 2010 unless Congress enacted legislation to keep it. So far, Congress has failed to act. As such, since January 1, 2010 there has been no federal estate tax.
Minnesota, however, did not repeal its estate tax. Minnesota estate tax is imposed on a decedent’s estate in excess of $1 million. Minnesota estate tax is imposed under a graduated rate schedule based on the value of the taxable estate. The tax rate starts at 41% and goes down to 9%.
Where are we going?
The fate of the federal estate tax is still unknown. Several proposals have been offered; however, we are no closer to knowing with any degree of certainty what new legislation might look like. If Congress does not act in 2010, the estate tax and GST will automatically return in 2011 with an exemption amount of $1 million and an estate and gift tax rate of 55%. This is dramatically different from the 2009 federal estate tax exemption of $3.5 million and estate and gift tax rate of 45%. Consequently, if Congress does not act, many more estates will likely be subject to estate taxes.
PLANNING
All of the uncertainty can make it difficult to plan. Doing nothing, however, is not the suggested course of action. Planning can be undertaken to minimize taxes in order to maximize what is given to beneficiaries. It is important to be aware of the current and future status of federal and state estate taxes and to clearly identify goals and objectives. Then, armed with the facts, it is possible to create an appropriate estate plan
