As many of you know, Congress did not act to change the Federal estate tax prior to 2010. Therefore, the Federal estate tax, as of 1/1/10, was officially repealed. If a client dies in 2010, absent any future changes in the law, there is no Federal estate tax, however, there is still a New Jersey estate tax imposed on assets valued over $675,000. Also, with the estate tax repeal, there is no step-up in the income tax basis of estate assets at death (as there was in the past). Therefore, clients will need to work hard to keep accurate records of the basis of each asset. The basis is calculated as purchase price, plus any capital improvements or further investment. This will result in capital gain being incurred at the sale of any one or more of the estate assets.
The 2010 repeal of the Federal estate tax will once again change, absent any future change in the tax laws, in 2011 when the Federal exemption amount will be $1,000,000. This means that all assets valued over $1,000,000 will be subject to taxation at the Federal taxable rate. This is not a good result for our clients, as each individual can pass only $1,000,000 tax free, whereas, they could have passed $3,500,000 tax free in 2009.
We believe that Congress will act soon to change the current law and freeze the Federal expemtion amount at approximately $3,000,000, adjusted for inflation. The tax rate will be approximately 45%. However, there is no guarantee. It is very important for clients to review their planning to be sure they take advantage of every opportunity these changing times afford.
Stay tuned. We will update you on any changes in the estate tax laws.
AnnMarie Palermo-Smits, Esq.