Highlights of the New Estate Tax Legislation


Volume 1 • Issue 1 • January 2011

The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. This month's issue will provide an overview of the new federal tax legislation and how that legislation effects estate planning. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.

In December 2010 President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "2010 Tax Act"). This is meant to be a brief look at the new law, please contact us to discuss how this new law will apply to your particular situation.

Estate Tax Exemption and Tax Rate

For the years 2010, 2011 and 2012, the individual exemption is now $5 million and the tax rate is 35%. Basically, this means if a person dies in one of those years and has a "taxable" estate of less than $5 million there will be no estate tax due. If the taxable estate is more than $5 million, the excess over $5 million will be taxed at 35%. It's important to remember that these changes are only effective through 2012. If Congress does not act again before the end of 2012 the estate tax exemption will drop to $1 million (adjusted for inflation) with a top tax rate of 55%. It is also important to remember that some states have their own death tax, so your estate could be exempt from federal estate tax but still have to pay a state death tax.

Portability of Estate Tax Exemptions between Spouses

Under the prior law, your estate tax exemption was like a coupon that could be applied toward estate taxes that were owed. This coupon was limited to one per customer so it was important that proper planning take place to ensure that both spouses' coupons were properly utilized. In the 2010 Tax Act Congress created something called "portability." Portability allows the Executor of the deceased spouse's estate to transfer any unused federal estate tax exemption to the surviving spouse on a timely filed estate tax return. Portability, however, is presently only available to couples when both spouses die between January 1, 2011, and December 31, 2012. The uncertainty surrounding the continued existence of "portability" along with many non-tax reasons such as probate avoidance, creditor protection, re-marriage protection and planning for blended families requires planning beyond simple reliance on the unlimited marital deduction and portability.

Optional Retroactive Planning for Estates of Those Who Died in 2010

The new law retroactively reinstated the estate tax for all of 2010. However, the Executor for anyone who died in 2010 has the option of electing to use the law as it existed prior to the 2010 Tax Act. Executors have until September 17, 2011 to elect this option. Making this election would generally be good for those with large estates that would not be covered by the $5 million exemption, however, each case must be evaluated individually.

Gifting in 2011 and 2012

For 2011 and 2012, the gift tax exemption is $5 million per person ($10 million for a married couple), with the tax rate above the exemption at 35%. This exemption is unified with the estate tax exemption, so any unused amount can be transferred to the surviving spouse under the portability provision. You can still make annual tax-free gifts of $13,000 ($26,000 if married) that do not count against the gift tax exemption to as many individuals as you wish each year. (This amount is tied to inflation and is adjusted from time to time.)

Generation Skipping Transfers in 2011 and 2012

The Generation Skipping Transfer (GST) tax is a highly complex area of the law. This tax is levied on transfers that "skip" a generation, such as a direct gift to a grandchild. This tax is in addition to any estate or gift tax that may be owed. For 2010, the GST tax exemption was $1 million with a 0% tax rate, because there was no estate tax. In 2011 and 2012, the GST tax exemption is $5 million ($10 million if you are married and you plan ahead) with a 35% tax rate.


Now is the perfect time to move forward with your estate, retirement and disability planning. The 2010 Tax Act provides tremendous planning opportunities for families with estates of all sizes, but it is a limited time opportunity that expires on December 31, 2012. But remember, regardless of the recent changes, or changes that will come in the future, the most important part of planning is planning that focuses on accomplishing your family goals and objectives.


Statistics show that about 90% of all businesses in the United States are family owned. Of those businesses only about 30% successfully transition to the second generation and only about 15% to the third generation. The beginning point and lifeblood of any successful transition of a family business is open communication. For a business succession plan to be successful the participants must be in agreement as to the ultimate goal and the plan for getting there. Anything less is a recipe for failure in the business and discord in the family. Start the conversation now.

This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.