Mar 28, 2011

Estate, Gift and Generation Skipping Taxes 2011: In a Nutshell

Like they say, You can't take it with you! But thanks to The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, your loved ones stand to get more of what you leave behind.  If you're confused about what the law means for you, you're not alone. Below, the new laws for 2011-2012 in a nutshell.

Some key points to keep in mind:
  1. The State of Florida does NOT have an estate tax, gift tax or generation-skipping tax. The figures below represent federal taxes.
  2. The current law expires Dec. 2012... and we don't know what the tax structure will be after that.
  3. Many people think that if their estate is not taxable, it will not need to pass through probate. The truth: If the assets of the deceased individual do not exceed $5 million and no taxes are owed, the estate will still need to be probated if appropriate probate-avoidance procedures have not been put in place.
Estate Tax:
  • $5 million lifetime exemption per individual
  • Tax rate 35%
  • Also new is the portability provision, which means that a spouse may use any unused portion of a deceased spouse's estate tax exemption.
Gift Tax:
  • $5 million lifetime exemption per individual
  • Tax rate 35%
  • Like the estate tax, there is a portability provision for married couples.
  • An individual may make gifts up to $13,000 per year to as many individuals as desired, without using up any of the person's gift tax exemption. A gift to someone in any amount may be made if the gift goes directly to a medical or educational institution.  
For 2011-2012, the estate tax and gift tax are "unified." This means any gifts made count against one's estate tax. Example: If an individual made taxable gifts during her lifetime of $4 million, she would have only $1 million left to apply to her estate. Anything over $1 million would be subject to estate tax.

Generation Skipping Tax:
  • $5 million exemption
  • 35% tax rate
  • No portability provision
The generation-skipping transfer tax (GST tax) applies to gifts made to grandchildren, great-grandchildren and even more distant generations - in other words, gifts that "skip" the next geneation. A "skip person" can be a real person, but for tax purposes, it can also be a trust in which all interests are held by skip persons or a trust in which no person holds an interest and from which no distribution may be made to a non-skip person.

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