The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) provided for the end of the estate tax regime by phasing out the Federal estate and generation-skipping transfer taxes beginning in 2002 and ending in with a repeal of these taxes at the end of the year 2009. There was a great deal of speculation about whether Congress, by not acting, would allow the repeal of the estate tax regime. Chapter 24 reviews the estate tax policy as it evolved from the inception of the unified system of wealth transfer taxes beginning in 1976. The rationale for this review was that the effect of the estate tax regime on business succession planning was essential knowledge for the advisor no matter what might come from Congress. The effective advisor needs to understand the influence of the estate tax regime on the planning for business owners, both from an historical and prospective point of view.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA 2010) was signed into law by President Obama on December 17, 2010. The act makes certain short-term changes to the estate tax regime. For decedents who die in 2011 or 2012, TRA 2010 sets new and unified estate tax, gift tax and generation-skipping transfer tax exemptions and rates. For 2011 and 2012, the federal estate tax exemption is $5 million and the estate tax rate for estates valued over this amount is 35%. The estate tax has also become unified with federal gift and generation-skipping transfer taxes such that the gift tax exemption and generation-skipping transfer tax exemption will be $5 million each and the tax rate for both of these taxes is 35%. TRA 2010 also provided “portability” of the federal estate tax exemption, so that married couples may add any unused portion of the estate tax exemption of the first spouse to die to the surviving spouse's estate tax exemption. Portability does not apply retroactively and is available only for deaths occurring in 2011 and 2012. The new law does not allow a surviving spouse to use the unused generation-skipping tax exemption of a predeceased spouse. If Congress does not act, in 2013 the current law will be back in effect with the exemption at $1 million and the top tax rate at 55%. This provision will ensure a condition of planning instability for estate planners for the next few years. Chapter 25 reviews the strategy of estate planning for these years of instability. The estate planning strategies will not change but will be implemented with a perspective of possible changes in the short-term and flexibility. The effective advisor needs to understand the strategies used by estate planners for business owners, both from an historical and prospective point of view.
