At the stroke of midnight last year the federal estate tax ended. You might assume that tax and estate lawyers would have been delighted, and considered that the pumpkin had truly turned into a coach. However, there was no glass slipper and the coach was full of confusion.
If Congress does nothing in the meantime, when we celebrate First Night in Chatham this year the coach will disappear, and we will be left again with a pumpkin - that law as it was ten years ago. The rate will be higher and the exemption will be lower and more people will pay more estate tax.
I believe that, some time after the first day of 2011, Congress will act to leave the federal estate tax in about the same position it was last year - that is, the first $3,500,000 in each estate will be free of tax and the top rate will be 45%. This view could be wrong, and we could be stuck with the 2001 situation - only the first $1,000,000 would be free of tax, and the top rate would be 55%.
Since the future of the estate tax is so uncertain, and there is a possibility that there will be an estate tax increase next year, if your estate would be subject to a substantial amount of tax under the 2001 regime, we suggest that you talk with us about ways to reduce your estate tax liability. There are tax-efficient plans which are available now which may not be available next year.
The Grantor Retained Annuity Trust ("GRAT") is a device which enables someone to make a gift of a substantial amount of money or other assets, at very low tax cost. The GRAT, which will be curtained by legislation now in Congress, will be restricted in the future.
Family Limited Partnerships and Limited Liability Companies ("LLCs") are also devices which permit the transfer of assets to the next generation at low tax cost. These are very effective, but they must be established and managed with care.
We will post the latest tax news on our website. We will be glad to show you how to establish your estate plan to provide the best results, regardless of what Congress may do.
