Several important estate and gift tax changes occur this year.
Federal Estate Tax. Each individual is entitled to a federal estate tax exemption to shelter an amount of property from the federal estate tax, which can be imposed at a rate of up to 45 percent. The estate tax exemption for 2008 was $2 million. The exemption has increased to $3.5 million for 2009.
Federal Gift Tax. Gratuitous lifetime transfers that exceed the donor’s annual exclusion and lifetime exemption are subject to a 45 percent gift tax. The annual exclusion increased from $12,000 in 2008 to $13,000 in 2009. Gifts qualifying for the annual exclusion may be made outright or to UTMA accounts, section 529 plans, section 2503(c) trusts or Crummey trusts.
GST Tax. Each individual is also entitled to a GST tax exemption to avoid the tax imposed on certain transfers to younger generations (e.g., grandparent to grandchild). The GST tax is imposed at a fl at rate of 45 percent. The GST exemption increased from $2 million in 2008 to $3.5 million in 2009. This increased amount may be allocated to new gifts, either outright or in trust, or to previously created trusts.
Tax Legislation. Current reports suggest that the new administration intends to keep estate, gift and GST tax rates and exemptions at their 2009 levels and forgo the one-year estate tax repeal scheduled for 2010. Other signifi cant changes, however, are still possible. For instance, a proposed bill (HR 436) would eliminate many valuation discounts currently applicable to family-owned entities. If enacted, this change could eliminate or reduce the attractiveness of many traditional estate planning techniques and may require reevaluating plans already in place.