When the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law by Pres. Obama on December 17th, the Bush era tax cuts were extended, and that was the headline news. But there were a number of additional provisions included in the measure, and one of them that is positively impacting many people is the one-year reduction of the Social Security payroll tax.
There were also some provisions included in this new measure that profoundly impacted the estate planning community. As has been widely reported, the rate of the estate tax has been reduced to 35% when it would have reverted back to the 2001 level of 55% had this legislation not been passed. In addition, the estate tax exclusion was raised to $5 million when it would’ve been $1 million upon the sunset of the Bush era tax cuts as 2010 came to a close.
There are also some lesser publicized provisions in the new measure that are of interest to estate planning professionals as well. One of these includes the portability of the estate tax exclusion between married couples. As stated, the estate tax exclusion is now $5 million, and this is per person so a married couple has a total of $10 million to work with when they are planning their estate. When you hear this you may logically wonder whether or not your spouse would be able to use your $5 million exclusion if you were to pass away. This is the issue of “portability” in an estate planning context.
Prior to the passage of this new legislation the exclusion was not portable, and most observers felt as though this was patently unfair. In a nutshell, the assets that comprise the estate of a married couple were accumulated by two people, yet when one of them passed away only one exemption was applicable.
Going forward in 2011 and 2012, the estate tax exclusion has now been made portable, and this is another one of the positive developments that has come out of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.