Federal Estate and Gift Tax Exemption Now $5,120,000

Beginning in 2011 the Estate and Gift Tax exemption for all citizens is $5.12 million dollars. In addition a surviving spouse can also include the unused portion of their deceased spouse exemption. The new law makes the exemption “portable” between spouses. For example, if the first spouse to die uses only $2 million dollars of their exemption the surviving spouse will be able to exclude $8,240,000 million dollars of her estate from Federal Estate and Gift Tax.

Please be aware this exemption is not automatic and requires the first spouse to die file a Federal Estate and Gift Tax Return (709) even if no tax is due.

Like all in life the new exemption amounts will not last forever. They are expected to expire at the end of 2012. Again a new Congress and perhaps a new President will need to adjust exemptions and rates. If nothing is done exemptions will drop to $1 million and rates up to 55%.

To give estate plans the most flexibility to adapt to ever changing exemption amounts and tax rates, we often advise our clients to adopt “disclaimer Trusts”. Their wills leave everything to their spouse but the spouse has the option to transfer assets to the exemption or by pass Trust. This enables her to provide for her financial needs and utilize the Estate Tax exemption then in effect.