President Obama wants to freeze the current estate tax level to $3.5 million which is…
Avoiding the federal estate tax in 2009 will get easier for everyone
Avoiding the federal estate tax in 2009 will get easier for everyone, even without making a single change in your estate plan. That’s because due to a change in the law the amount you’ll be able to pass to your family without paying a single dollar in tax will increase from $2 million to $3.5 million.
Most observers of Capitol Hill believe that more tax changes will come about later in 2009. President Obama supports maintaining the exemption amount at $3.5 million and maintaining the existing estate tax rate of 45 percent for estates that exceed the exemption amount.
State Estate Tax Laws Unchanged.
Furthermore, residents of New Jersey have other concerns – the state estate tax. In New Jersey, the state exemption amount is $675,000. This means that residents may be subject to state estate tax even if they’re able to avoid the federal estate tax. While the state estate tax (roughly 15%) is not as burdensome as the federal estate tax, it is substantial nonetheless. For example, in 2009 an estate of $3.5 million will pay $229,200 to New Jersey and no tax to the federal government. Therefore, despite the relaxation of the federal estate tax in 2009, the overall cost of estate taxes will remain a concern for many.
Because the estate tax laws remain a moving target, it is important that your planning be flexible. Estate tax planning for married couples often involves the creation of trusts for the benefit of the surviving spouse so that the exemption amounts, state and federal, are used efficiently. Such a trust could allow a married couple in 2009 to transfer up to $7 million to their children and other heirs by using the federal exemption amount that is available to each of them. In many situations it is advisable to limit the funding of the trust to the state exemption amount. The need for such a trust and the amount with which it is funded will depend on a multitude of factors that often cannot be evaluated when documents are signed. Flexibility will remain important in 2009 for a number of reasons, including the continuing uncertainty of the federal tax law, the possibility of changes in residency to other states, the tremendous volatility in asset values in recent months, and possible changes in life circumstances.
Estate planners use a number of techniques to achieve the needed flexibility. These techniques are designed to allow for a “wait and see” approach, such that decisions can be deferred until all of the important factors can be better evaluated. For example, the incorporation of disclaimers into one’s estate plan and the use of elections that can be made up to 15 months after one’s death are often good ways to achieve flexibility.