Legislative Risk: No federal estate tax in 2010. No step up in basis in 2010 (except for $1.3 million). Will the Bush tax cuts expire? No more two year GRATs? What will happen in 2011? Uncertainty. Like we do not have enough of it!
Are there opportunities for planning in all of this uncertainty? Here are a few:
- If you have an appreciated asset that you want to sell, do it sooner rather than later. The long term capital gain tax rate is 15% today. This rate will assuredly increase after 2010.
- If you want to make large taxable gifts ($1 million or more), do it in 2010, while the gift tax rate is 35%. If Congress takes no action this year on the gift tax, the gift tax rate increases to 55% in 2011.
- If you want to move appreciation in your estate to the next generation without gift tax, create a zeroed out Grantor Retained Annuity Trust now. Included in the Small Business Act, which has passed the House of Representatives and is in the Senate Finance Committee now, is a provision to limit GRATs to a 10 year minimum term with zeroing out prohibited. The New York Times reported on September 15, 2010, that this bill is likely to pass the Senate and become law soon.
We wish we could confidently predict what the future holds for tax planning. But we can’t. Lots of uncertainty. Call us to evaluate what this may mean for your estate plan.