Thursday, December 9, 2010

Proposed Estate Tax Deal for Two Years: 35% Tax Rate And $5 Million Exemption. Bigger Question For Most Americans: Do You Have An Estate Plan?

On December 6, 2010, President Obama announced that he has reached a deal with Republicans regarding the estate tax and other Bush Tax Cuts. Under the deal, the repeal of the estate tax in 2010 would not be extended. The estate tax would be revived, but not as it is scheduled.

Under current law, if Congress reaches no agreement, the estate tax is scheduled to come back in 2011 at a top rate of 55% (60% in some cases) and an exemption of a mere $1 million for individuals.

Under the Obama-Republican deal, the estate tax would come back at a rate of 35% and with an exemption of $5 million for individuals -- for two years. However, it is unknown whether the lame duck House would pass an estate tax exemption this high. This proposal may also not be popular among the Democrats.

From a planning perspective, the question is what should we advise our clients? Our approach is simple. Plan with the current law and not based upon any politicians' proposal.

One problem with this current proposal is that it's not a permanent solution. Under the deal the 55% tax rate and $1 million exemption would return in 2013. Married taxpayers will still need to utilize highly flexible planning that will allow the surviving spouse to adjust the planning after the first spouse’s death. This can be done by utilizing a “wait-and-see” trust that can adjust for different Federal and State exemptions and can be adjusted for up to 15 months after the date of the first spouse’s death if congress changes the law.

Get an estate plan. According to a Lawyer.com survey in early 2010, many Americans do not have proper estate plans. Only 35% of Americans now report having a will and only 21% have a trust. Thus, while a great deal attention is focused on the proposed legal changes, it is important to focus on yourself and your family and get an estate plan in place and not wait for Congress to act.

Posted by Henry (Hank) J. Moravec, III, a partner at Moravec, Varga & Mooney. For a complimentary 30 minute consultation (telephonic or in person), you can e-mail Hank Moravec at hm@moravecslaw.com or call him at (626) 793-3210 or (818) 769-4221.

He focuses his practice on Estate Planning, Trust and Probate Administration, Beneficiary and Trustee Representation, Probate Litigation, Tax Law, and Nonprofit Law. He represents clients throughout Southern California and his offices are conveniently located for clients in the Los Angeles, Orange, Santa Barbara, Riverside and San Bernardino Counties.

The firm website is http://www.moravecslaw.com/. The firm has two offices and consultations and meetings can be held at either office. The San Gabriel Valley office is located at 2233 Huntington Drive, Suite 17, San Marino, California 91108. Telephone: (626) 793-3210.

The San Fernando Valley office is located at 4605 Lankershim Boulevard, Suite 718, North Hollywood, California 91602-1878. Telephone: (818) 769-4221.