Overview of Current Federal Estate Tax Laws

On January 1, 2010, the federal estate tax was officially repealed, but on December 17, 2010, it was brought back retroactively to January 1. Historically the federal exemption from estate taxes and estate tax rate changed and will continue to change in the future as listed below in the Federal Estate Tax Schedule.

This schedule poses a problem for estate planning attorneys and their clients - what should be the plan for the next few years?

Estate Planning in 2011, 2012 and Beyond

Although the federal estate tax was officially repealed on January 1, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act ("TRA 2010") into law on December 17, 2010, which reinstates the estate tax retroactively back to January 1 and also sets new rules for the estates of decedents who die in 2011 and 2012. This law, however, is set to sunset on December 31, 2012, which means that in 2013 the estate tax laws will revert back to the laws that were in effect in 2001/2002. Nonetheless, this uncertainty should not be used as an excuse to put off making or updating your estate plan, because the consequences of not having an estate plan, or having an outdated estate plan, are simply too great. The beauty of estate planning is that estate plans can be made flexible enough to change as your life and the laws change.

Planning for State Estate Taxes

The other thing that must be considered when planning for estate taxes is where you live since currently a handful of states and the District of Columbia collect an estate tax at the state level and seven states collect a state inheritance tax (Maryland and New Jersey are the only two states that collect both types of taxes):

In most of the states that collect state estate taxes, there is a significant gap between the federal estate tax exemption of $5 million and the state estate tax exemption. For example, in the District of Columbia, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon and Tennessee, the state estate tax exemption is only $1 million, so in these states residents need to make a plan for dealing with the gap of $4 million between the federal and state exemptions.

What You Should Do

Unfortunately, no one can predict the future and if and when someone will become mentally incapacitated or when someone will die. If you do not have a disability plan, then you and your property may end up in a court-supervised guardianship or conservatorship, and if you do not have an estate plan, then your loved ones will not know what you really wanted and your property may go to someone or somewhere that you would not have chosen had you taken the time to make a plan. Be smart - make an estate plan, or update your old and outdated estate plan, to protect you and your loved ones.

Historical Estate Tax Exemptions and Rates

Please refer to the following charts to view historical information about the federal estate tax exemption and rate:

• Chart Showing Federal Estate Tax Exemption and Rate: 1916 - 1997
• Chart Showing Federal Estate Tax Exemption and Rate: 1997 - 2013

*The heirs of decedents who die in 2010 will have the choice to use the $5,000,000 estate exemption/35% estate tax rate or $0 estate tax exemption/0% estate tax rate coupled with use of the modified carryover basis rules.

**TRA 2010 provides that the estate tax exemption, lifetime gift tax exemption, and generation-skipping transfer tax exemption will be indexed for inflation in 2012, hence the $120,000 increase in the 2012 estate tax exemption.

Federal Estate Tax Schedule