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On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law. This new law includes several significant, temporary changes to the gift and estate tax that could significantly impact many individual’s estate plans.

The exemption amount for estate tax in 2011 and 2012 is now $5 million per person, with a maximum rate of 35%. These changes alone represent a significant increase over the 2009 exemption of $3.5 million per person, with a maximum rate of 45%. The federal government also introduced the new concept of “portability” in the estate tax arena. This concept allows a transfer to the surviving spouse of their deceased spouse’s unused estate tax exemption. While this new idea of “portability” may assist those couples who may not have done any estate planning prior to death, it is not a substitute for thorough and early planning.

The new law also brings about the reunification of the gift and estate tax, with a gift tax exemption in 2011 and 2012 of $5 million per person, $10 million for married couples. This change in the gift tax exemption, from a maximum exemption in 2010, and prior years, of $1 million, opens up many avenues of tax planning during lifetime that were impossible before January 1, 2011. Since there is no “portability” concept for gift tax, lifetime gift planning is an important tool that should not be overlooked.

Clearly, the changes to the estate and gift tax are significant due to the size of the exemptions and the lowering of the tax rates. However, these new changes are slated to expire on December 31, 2012, and the future of the estate and gift tax is unsure, to say the least. All individuals, no matter the size of the estate, should be consulting their estate planner regarding the opportunities available with the new tax law.

If you have any questions regarding your own estate plan, please call Taroff & Taitz, LLP, to make an appointment.

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