Estate planning attorney san diego

For several years, each individual (married or single) could hand out a certain amount of his / her wealth without any estate or gift taxes. This amount is popularly referred to as Unified Credit Amount. Traditional estate planning married people involved creating an “AB Trust”. It was required to take advantage of the Unified Credit Level of both spouses, as opposed to just one, the net result being how the amount of wealth that could be passed tax-free from the married couple with their beneficiaries was doubled. Additionally, the cornerstone of assets part of a decedent’s estate were stepped up towards the fair market price around the date of death, thereby eliminating the possibility capital gains tax on pre-mortem appreciation.

Estate planning san diego

In 2001, Congress modified the Unified Credit Amount by increasing it on the next a long period from $1.0 million per part of 2001 to $3.5 million per part of 2009. There was no estate tax on persons dying this year and, except to some limited extent, no intensify in basis either. In 2011, the Unified Credit Amount reverted to the 2001 levels. Additionally, the 2001 legislation gradually dropped the estate tax rates from 55% to 45%. The 2001 legislation also made changes towards the gift tax law. While the Unified Credit Amount increased for estate tax purposes, it was capped at $1.0 million for gift tax purposes, although the gift tax rate was further reduced to 35%. Because of the “repeal” from the estate tax for persons dying in 2010, a great deal of uncertainty was developed, making effective estate tax planning difficult otherwise impossible.

Estate planning san diego
In January 2011, Congress finally handled the uncertainty in the estate and gift tax law, at least temporarily. The principal changes are highlighted below:

1. The newest law was developed effective retroactively to January 1, 2010. However, estates of persons dying in 2010 can tend to be treated (and taxed) under the new law (possible estate tax but basis step-up is offered), or under the 2001 law (no estate tax and no basis step-up). Logic dictates, therefore, that when an individual died this year and his awesome or her estate stood a net worth of $3.5 million or less (assuming no lifetime taxable gifts), his / her estate would want the 2011 law to use. The explanation for this can be there will be no estate tax, but the first step toward the assets will step-up to fair rate, thereby reducing or eliminating capital gains tax on the subsequent sale of the assets. A couple having an estate of $7.0 million or less (assuming it is of them equally) dying this season would similarly want the 2011 law to use. Estates substantially over the Unified Credit Amount would presumably want to have the 2010 law apply because there will be no immediate estate tax and then any capital gains tax caused by the lack of a basis step-up would be deferred before assets were sold; and, the main city gains tax rate would be less than the estate tax rate, the difference being tax permanently avoided.

2. Underneath the new law, the Unified Credit Amount was increased to $5.0 million per person and also the tax rate was reduced to 35%. The newest Unified Credit Amount and tax rate applies for both estate tax and gift tax purposes. In addition they applies for generation skipping transfer tax purposes.

3. The 2011 law introduced a fresh concept called “Portability” of the Unified Credit Amount. This means that each spouse can transfer his or her unused Unified Credit Add up to his or her spouse. This eliminates (a minimum of for tax purposes) the need for an AB Trust. Consequently, the very first spouse to die can leave his / her estate outright to their surviving spouse. As a practical matter, however, this works only when it comes to an individual, long-term marriage, having a common set of children or other beneficiaries. To find the good thing about the Portability, the associated with the deceased spouse’s estate must make an election. Strangely enough, Portability will not apply for generation skipping transfer tax purposes. So, persons who wish to leave their estates to grandchildren or maybe more remote beneficiaries will need to retain the AB Trust structure in order to minimize GST tax and maximize GST tax exemptions.

4. Unfortunately, Congress made the 2011 law effective only until December 31, 2012. On January 1, 2013, this year's law expires and also the rules that existed before the 2001 legislation are automatically reinstated-unless, of course, Congress takes further action during those times. Because of this uncertainty, the estate plan documents for couples (with long-term marriages and single group of beneficiaries) needs to be modified to offer that when death occurs before 2013 and if the Portability election is created, the deceased spouse’s estate passes outright towards the surviving spouse (assuming no GST tax issues are present); and when death occurs after 2012 and assuming Portability is no longer available, then the deceased spouse’s estate passes to Trust “B” to the extent of the deceased spouse’s Unified Credit Amount.


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