In The News
Connecticut Applicable Exclusion Amount Reduced Effective January 1, 2011
On May 4, 2011, Connecticut's Governor, Dannel P. Malloy, signed 2011 Conn. Pub. Acts 6 into law. The major effect of this legislation on estate planning is the reduction of the Connecticut Applicable Exclusion Amount from $3,500,000 to $2,000,000 for the estates of decedents retroactive to January 1, 2011. This legislation similarly reduces the Connecticut Gift Tax threshold from $3,500,000 to $2,000,000 for the aggregate amount of Connecticut taxable gifts made since January 1, 2005.
If you have questions about the changes due to this law or your personal situation and how it may affect your estate plan, please contact us to discuss, and potentially update, your estate plan.
December 22, 2010
The highlights of the new Federal estate tax legislation are as follows:
- An individual who dies can pass up to $5,000,000 of his or her estate free of any Federal estate taxes. This figure will be adjusted annually for inflation. The 2009 exemption amount was $3,500,000. Assets passing to a surviving spouse continue to qualify for the unlimited marital deduction.
- The Federal exemption from estate tax will be “portable,” which means that the unused portion of the deceased spouse’s $5,000,000 exemption will be available upon the death of the surviving spouse. This portability provision enables the $5,000,000 exemptions of a husband and a wife to be doubled upon the death of the surviving spouse, without the use of traditional estate planning tools such as credit shelter and disclaimer trusts.
- The top Federal estate tax rate will be 35%. In 2009, the top tax rate was 45%.
- The lifetime exemption from gift tax has increased from $1,000,000 to $5,000,000. This exemption enables a person to make large “taxable gifts” during his or her lifetime without having to pay Federal gift tax. Any portion of the gift tax exemption used during a person’s lifetime reduces the exemption available on death (item 1. above).
- The maximum value of assets that can “skip” a generation (pass from a grandparent to a grandchild) without triggering an additional tax will be $5,000,000.
Each of the changes discussed above are beneficial to taxpayers. The bad news is that the changes are effective for 2011 and 2012, but the estate tax laws revert to 2001 levels ($1,000,000 exemption and a 55% tax rate) if no further legislative action is taken before 2013.
No change has been made to the annual exemption from gift tax. That figure will remain at $13,000 for gifts made in 2011.
The increase in the estate tax exemptions and the portability provision may simplify the estate planning concerns for many people, but these changes do not eliminate the need for a comprehensive estate plan. Well-drafted Wills and trusts are designed to minimize state estate taxes (including New York, New Jersey and Connecticut) and to fully utilize generation-skipping tax planning. Wills and trusts also enable a person to restrict access to the beneficiary’s inheritance.
Changes to New York Power of Attorney Form as of September 12, 2010
Effective as of September 12, 2010, a revised form of Power of Attorney must be used in New York. Properly executed forms signed prior to that date are still effective and do not need to be updated.
Among other changes, the new form forces the attorney and client to address issues relating to gift giving, especially in the event of incapacity. A new “Statutory Gifts Rider” must be signed and witnessed in order to authorize gifts of more than $500.