Overview:

The new Federal estate tax laws, as implemented by a last minute act of Congress, and signed into law by the President on December 17, 2010, as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, has generated the media fervor similar to that created after the prior “repeal” of the estate tax by the Tax Relief Reconciliation Act of 2001.

Unfortunately, for those of us unlucky enough not to have died in 2010, estate taxes will probably still be an issue.

The estate tax basics of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 are:

• An ability to elect to use the 2011 rules for deaths occurring in 2010 (Providing the missing “basis step-up” that came with repeal).

• An increased unified credit amount resulting in the ability to pass $5,000,000 estate tax free, during lifetime or at death.

• A maximum federal estate tax rate of 35%

• The ability of spouses to utilize their full unified credit amounts without bypass/credit shelter trust planning.

The Top Five Three Myths:

1. With the Ability to pass $5,000,000 estate tax free, advance estate tax planning is unnecessary except for high net worth individuals.

What the government gives, the government also takes away. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 expires December 31, 2012, and currently those planning to die in 2013 will face a return to a unified credit amount allowing $1,000,000 to pass free of estate taxes, and maximum federal estate tax rates of 45%, as established by the Taxpayer Relief Act of 1997.

Additionally, states have generally not yet “synchronized up” with the new Federal law. For example, Oregon remains linked to the Taxpayer Relief Act of 1997, at $1,000,000. Washington set its amount at $2,000,000, for deaths after May 17, 2005. Idaho and California have no state estate tax for deaths occurring after January 1, 2005.

2. With the portability of the unified credit amount between spouses, bypass/credit shelter tax planning is no longer necessary for married couples to fully utilize both of their unified credit amounts.

This is true for married couples lucky enough to live in a state without an estate tax, and to die in 2011 or 2012.

However, states have not adopted “portability” of the unified credit amounts between spouses, and the new law expires in 2013.

Additionally, portability does not apply to the Generation Skipping Tax (GST) exemption. Until it does, tax planning remains very important.

In Oregon, the threshold net worth for a married couple requiring tax planning remains at $1,000,000.

3. It is impossible to do any real planning until the law “settles.”

If anything, the state of estate tax law since the Taxpayer Relief Act of 1997 has demonstrated the importance of good planning notwithstanding uncertainty in the law.

Estate tax planning is only one piece of estate planning. Estate planning remains important for all the normal, “boring” reasons, including:

• Disability protection

• Directing asset distribution/wealth succession planning

• Reduced estate administration costs,

• Reduced conflict among beneficiaries,

• Planning for special needs

• Choosing guardians for minor children

• Spendthrift planning

Our country has a long history with the estate tax. For a great historic review of the estate tax see The Estate Tax: Ninety Years and Counting, available at:

http://www.irs.gov/pub/irs-soi/ninetyestate.pdf

Conclusion:

Good advisors will help their clients recognize the importance of estate planning, and work to overcome the possibility of client paralysis which may be caused by uncertainty. Estate planning and especially estate tax planning remain important, especially for individuals or couples in Oregon with a net worth of over $1,000,000.