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Update

2009 Developments Affecting Estate Planning

    On January 1, 2009, a number of changes will take effect with respect to the Federal estate, gift and generation-skipping transfer ("GST") taxes.  This update highlights these changes in the law that may require the review of your estate plan.

Increase in Federal Estate Tax and Generation-Skipping Tax (GST) Exemptions

    Each individual has an exemption from the Federal estate and GST taxes that he or she can use to transfer property at death without the imposition of an estate tax or a GST tax.  The exemption from the Federal estate tax and the exemption from the GST tax will increase on January 1, 2009 from $2 million to $3.5 million and the top Federal estate tax and GST rate will remain at 45%.

    Although the estate and GST taxes are currently scheduled to be eliminated in 2010 and re-imposed with $1 million exemptions and a higher tax rate in 2011, we anticipate that there will be legislation in 2009 which will eliminate the repeal of the estate tax in 2010.  Our current belief is that the 2009 Federal estate tax and GST exemptions will be permanently maintained at $3.5 million, as will the 45% Federal estate tax rate.

Federal Gift Tax Exemption

    In addition to the Federal estate tax exemption and the GST exemption which apply to transfers at death, each individual has an exemption from the Federal gift tax, which can be used before death.  The Federal gift tax exemption allows an individual to transfer property during his or her lifetime without the imposition of a gift tax.  The current Federal gift tax exemption is $1 million and will not increase in 2009.  Also, the Federal gift tax exemption is not in addition to the Federal estate tax exemption.  If an individual uses his or her gift tax exemption during life, the Federal estate tax exemption is reduced accordingly.  The Federal gift tax is not scheduled for repeal in 2010.  We also believe that any legislation in 2009 will keep the Federal gift tax exemption at $1 million.

Formula Provisions For Federal Estate Tax Exemption

    The estate plans of many married persons have been designed to eliminate any Federal estate tax on the death of the first spouse and to minimize the Federal estate tax imposed on the surviving spouse's death by dividing the estate of the first spouse to die into two tax-free gifts: (i) a bequest of the maximum amount that may pass tax-free by reason of the Federal estate tax exemption to either (a) trust for the benefit of the surviving spouse or (b) directly to children and (ii) a bequest of the balance of the estate to the surviving spouse, which passes tax-free by reason of the marital deduction.  The bequest of the Federal estate tax exemption is usually defined by a formula so that the amount of the bequest increases automatically as the Federal estate tax exemption increases under the tax laws (as it will next year).

    Since the Federal estate tax exemption will increase from $2 million to $3.5 million in 2009, the trust for the benefit of the surviving spouse or the bequest to the children of the exemption amount will automatically increase in most Wills.  This could be problematic for two reasons:  (1) if the exemption amount passes directly to the children, too much money may pass to the children at the expense of the surviving spouse, and (2) each spouse will need to have at least $3.5 million in their individual names if the intention is to have both spouses take full advantage of the Federal estate tax exemption.

    In light of the automatic increases in the Federal estate tax exemption, married clients should review their Wills (1) to make sure the exemption amount passes as desired and (2) to ensure that each spouse has at least $3.5 million titled in his or her name individually in order to preserve the full benefit of the Federal estate tax exemption.

Annual Exclusion Gifts

    In 2009, the annual exclusion for tax-free gifts will increase from $12,000 to $13,000 per donee (or $26,000 per donee for married persons electing to split gifts).

     U. S. Treasury Circular 230 Notice: Any U.S. Federal tax advice included in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal tax penalties 1 



     1  On June 21, 2005, Circular 230, which was issued by the United States Treasury Department, became effective.  Circular 230 requires tax practitioners to include a disclaimer on written statements under certain circumstances.  Please call us if you have any questions.

 

If you have any questions about the Florida intangible tax, an intangible tax avoidance trust or this update, please call either Ronald S. Kochman or Maura Ziska at (561) 802-8960. You can also reach us through our web site at www.floridawills.com.


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