Proposed Estate Tax for 2011- Maybe

-
With plenty of time left in 2010 (insert sarcasm tone), Congress is moving towards modifying the federal estate tax system. Here is a quick summary of where we are currently, where will be if they don't pass anything, and what the current bill ("Tax Relief, Unemployment Insurance Reauthorization, And Job Creation Act Of 2010") would provide. (Disclaimer: this is the quick and dirty summary for discussions at holiday parties and should not be relied upon as an extensive analysis.)
  • What we had in 2009 - $3.5 million exemption per person, 45% tax rate
  • What we had in 2010 - No federal estate tax. "Carryover basis" on inherited assets, with limits.
  • What we will have in 2011 with no change - Federal estate tax for estates greater than $1 million, with a rate of up to 55%.
  • Under the current proposed bill - $5 million exemption, 35% tax rate above that.
One of the more interesting items in the proposed bill includes a "portability" provision. Historically, in order for both spouses to maximize their total available exemption amount, assets had to be titled in a certain manner and different drafting provisions were necessary. ("Use it or lose it" was the message.) The portability provision would provide that if a spouse didn't use their exemption, their spouse could use it. Thus, it could be possible for a surviving spouse to actually have a $10 million exemption available at death and pass $10 million tax free to their beneficiaries.

This portability will be interesting as to how it gets applied. It will change the way attorneys plan for their clients. Assuming this bill passes, of course.

Comments

Jeff N. said…
Mr. Gardner,

Do you think the exemption amount will stay at its current rate as indexed for inflation past 2012?

Also, are you relying on portability as a permanent planning technique, replacing A/B trusts?

Thanks for your insights.

Jeff N.
Drake Law Student
6:16 PM
Matthew Gardner said…
Good question. I predicted that we would not see repeal in 2010 and that we would have an exemption of $3.5M for 2011. I'm 0 for 2, so obviously I have no insight.

Given my track history, I still think it will be indexed and I think it will keep portability. Historically, it has not gone backwards and once you give a convenience (portability) it is hard to take it away.

Good luck in school Jeff.

Matt Gardner
11:02 PM
Post a Comment

Popular posts from this blog

Iowa Attorney Fees in Probate

-
Attorney fees in probating an estate of a deceased individual in the state of Iowa are set by the court. Pursuant to a state statute, the ceiling for fees is approximately 2%. Iowa Code section 633.198. While the statute states that it is the maximum, many Iowa attorneys treat it as the standard flat fee and will request - and often receive - fees based upon the 2% figure whether the amount of work equates to the 2% fee or not. Life insurance death benefits are not included when applying the 2% fee, but IRA's, 401k, jointly owned property, real estate, etc. are all included. If there is "extraordinary" services rendered, attorneys can also request extraordinary fees. Iowa Code sec. 633.199 . The statute sets out some examples of extraordinary services, such as sale of real estate, litigation and tax issues. Such fees are in addition to the ordinary 2% fees. An option to avoid paying attorney fees based on this flat rate system and approved by the court, whether the 2% o
Read more

Compensation for Executor in Iowa Probate

-
In Iowa, the fee for the executor is set by the court and is based upon a state statute. Their fee is also based upon the size of the estate, as reported on the inventory filed with the probate court . Iowa Code section 633.197 provides that the personal representative (executor or administrator) fee shall not exceed $220.00 for the first $5,000 of probate assets, and then 2% on all assets over $5,000.00. All assets of the estate are included in the fee determination, with the exception of life insurance payable to others. Any compensation received by a personal representative is taxable income to that individual. Thus, if a personal representative is a beneficiary, they may want to consider whether to waive their fee and thus increase their inheritance, which may be free of tax, or to take their compensation and pay income tax on that amount.
Read more

Time Period to Administer a Probate Estate in Iowa

-
Iowa law limits the time period in which to administer an estate of an Iowa decedent.  Iowa Code section 633.331.  If an estate is not opened up within 5 years after death of the decedent, it will not be able to opened up.  Iowa currently does not recognize any exception to this rule. What does that mean? If there is a will and you wait more than 5 years after death before doing anything, you've waiting too long.  Good luck on the headaches of transferring any assets at that point. This doesn't mean that you always have to probate an estate, but if there are any possible assets that may need to be distributed, don't wait.
Read more