2011 Federal Estate Tax Changes

24 February 2011 Categories: All Blogs, Estate Planning

As you may know, there have been several substantial changes to Federal Estate Taxes that could severely affect your Estate if you do not take necessary steps to properly protect your estate.
It is true that Congress finally acted and raised the Federal estate tax exemption to $5 Million dollars. They also enacted a few other tax advantages such as simplifying the system and allowing for portability from a predeceased spouse.

The problem with the new laws is that they are only temporary fixes. They are set to expire in 2012, meaning that if you live to 2013, you will be under a new set of laws. Most estate planning attorneys, financial advisors, and CPAs are hoping that Congress will institute laws in the next 2 years to make the system more stable and permanently fix problems.

If Congress does nothing, we will return to the 2001 laws, which have an estate tax exemption of $1 Million. Because we cannot predict what Congress will do, the safe bet is to plan as if the exemption will be $1 Million. So if your total estate, including assets and life insurance policies is over $1 Million, you should contact an estate planning attorney to discuss the benefits of trusts and other estate planning tools. Once Congress acts (or does not act as is often the case), your estate plan can be revisited after 2012 to ensure the right tools have been put in place to take advantage of the current tax law benefits.
You should also be aware that the current Tennessee state tax exemption is still $1 Million Dollars. While the state tax rates are not as high as the Federal rates, if your estate is higher than $1 Million Dollars, your estate will have to pay taxes as high as 9.5 % if you do not properly plan for this.

The biggest mistake that is made by most people when it comes to Estate taxes is not properly planning for life insurance proceeds. While life insurance proceeds are usually not subject to probate, the amount of life insurance proceeds will be includable in your taxable estate. There are simple planning techniques to deal with this problem but you will need an experienced attorney to draft documents to ensure your estate does not pay close to 50% of these life insurance proceeds in taxes that could have easily been avoided.

The attorneys at McNulty & Associates have the experience to handle any changes that you need for your estate. McNulty & Associates offers free consultations for Estate Planning. Contact us today to schedule a meeting. We look forward to working with you on your plan!

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