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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exemption reached its highest level of $3.5 million in 2009 at a 45% rate, was repealed for individuals dying in 2010 and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. To read about those changes, please
click here: How the 2010 Tax Relief Act
Affects the Basis of 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. 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 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!
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