To nearly everyone’s surprise, Congress still has not enacted legislation to cover 2010 estate tax and generation-skipping transfer tax. With every day that passes, the likelihood of Congress passing retro-active legislation decreases.
With that in mind, the following are some opportunities that should be explored for the appropriate family:
• Gifting. It is cheaper to pay gift tax than it is to pay estate tax, so making gifts during life is generally good planning. The low gift tax rates for this year, however, make it particularly attractive. In 2010, the gift tax rate has been reduced to only thirty-five percent (35%)—compared to 2009’s forty-five percent (45%) rate and 2011’s fifty-five percent (55%) rate. Put simply, this thirty-five percent (35%) rate is a bargain. For the individual who has already used his or her $1 million lifetime exemption and can afford to make further gifts, now is an excellent time to gift cash or assets to a trust, ideally for the benefit of your grandchildren and more remote descendants. The downside to this technique is that the gift tax has to be paid now (whereas estate tax will not be paid until death). The analysis here of which results in less tax – paying now or waiting until later – is similar to the considerations for making a Roth IRA conversions; like with paying income tax now with a Roth conversion, there are significant benefits in most cases to paying gift tax now.
• Trust Distributions. For existing trusts that are not exempt from the generation-skipping transfer tax, 2010 is a one-time opportunity to make distributions to grandchildren or more remote descendants of the creator of a trust free from the generation-skipping transfer tax.
• Low Value of Assets. With assets continuing to be at depressed values and interest rates continuing to be so low, 2010 is an excellent time for making loans, creating short term grantor retained annuity trusts and taking advantage of other opportunities.
• Deaths in 2010. There are unique opportunities and challenges for individuals who pass away in 2010. Thus, anyone in poor health should immediately review their existing estate plan.
Of course, the above is oversimplified and should not be relied upon without first consulting an attorney.
Please do not hesitate to contact me if you would like to discuss any of these issues further.