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Estate and Gift Taxation

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This past year was unusual in the world of estate planning. Under legislation passed in 2001, the federal estate tax exemption reached its highest level of $3.5 million in 2009 at a 45% rate, was repealed for individuals dying in 2010 and was scheduled to be reinstated for 2011 at a $1 million threshold at a 55% rate.

This past December, Congress passed legislation to finally address the seemingly inequitable disparity between 2009 and 2011. The 2010 Tax Relief Act is Congress’ stop-gap solution to the problem. For the next two years, every individual will be entitled to a $5 million federal estate tax exemption (subject to a 2012 inflation adjustment). The estate tax rate will be capped at 35%. Further, the $5 million exemption is portable between spouses. That is, any unused portion of the exemption at the first spouse=s death is available (with an appropriate election) for use by the surviving spouse. The new legislation also made significant changes to the basis rules for estate assets.

Importantly, these rules are retroactive to 2010 although an estate can elect to affirmatively opt-out of their application. That is, 2010 decedents have a $5 million federal estate tax exemption unless the estate’s representative affirmatively elects to opt-out and apply the 2001 legislation rules.

Keep in mind that these rules only address changes to the federal estate tax. The Oregon inheritance tax remains unchanged at a $1 million exemption for Oregon residents. While the Oregon legislature recently made the effective inheritance tax rates more progressive, minimizing exposure to the Oregon inheritance tax should continue to be an important piece of any Oregon estate plan. Other clients may want to simply update their plan in light of the new law. In any case, 2011 is an important year to review your existing estate plan to ensure that it continues to meet your personal goals and achieve any desired tax benefits.

We expect these issues to generate much debate this year and necessitate more changes to the federal estate tax laws. As always, we will try our best to keep you informed!

DISCLAIMER:The information contained in this website is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater Meyer Hollis & Marmion, LLP or its attorneys. Neither this website nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.