Significant 2009 Estate Tax Law Changes


hese changes in the law provide an ideal opportunity to review your current estate plan:

Federal Estate Tax

The federal exemption for estate tax has increased from $2,000,000 to $3,500,000 for 2009. The estate tax is currently scheduled to be repealed in 2010 and reinstated in 2011 with an exemption of $1,000,000.  I believe that Congress may finally change the law in 2009.  Stay tuned for further updates.

Maryland, D.C. and Virginia Estate Tax

The Maryland and D.C. estate tax exemption remains at $1,000,000.  This means that an estate may be subject to Maryland or D.C. estate tax (or another state’s estate tax) even if it is not subject to federal estate tax.  This change has a significant impact on wills and trusts created before 2001.   However, there is no estate tax in Virginia.  Other states have different exemption levels.  Please check with your tax advisor.

Generation Skipping Tax

The federal generation skipping transfer (“GST”) tax exemption has increased to $3,500,000 for 2009 and is scheduled to be repealed in 2010.  The GST tax will be reinstated in 2011, with an exemption level of approximately $1,400,000.  This change affects certain wills and trusts created before 2001 with GST provisions.

Gift Tax

The annual exclusion has increased from $12,000 to $13,000 for 2009.  Thus in 2009, each person may now transfer up to $13,000 to an unlimited number of individuals free of gift tax.  This change impacts various aspects of planned annual gifting, including the payment of life insurance premiums on policies that are held in an irrevocable trust.

The annual exemption for gifts to a non-citizen spouse has increased from $120,000 to $133,000.  Thus in 2009, a spouse can transfer up to $133,000 to their non-citizen spouse free of gift tax.

The lifetime exemption for gift tax remains at $1,000,000.  As such, the federal gift tax exemption is not equal to the federal estate tax exemption.  This impacts gifting strategies and overall estate planning.

Inheritance Tax

Maryland’s inheritance tax remains unchanged.  Assets distributed to “collateral heirs” at death are subject to a 10% Maryland inheritance tax.  Generally, collateral heirs are individuals other than spouses, parents, children, grandchildren, step children, spouses of children and grandchildren and brothers and sisters.  D.C. and Virginia do not have an inheritance tax.  A few other states have an inheritance tax.  Please check with your tax advisor.

IRA Charitable Rollover

The Emergency Economic Stabilization Act of 2008 (signed into law on October 3, 2008) extended the IRA charitable rollover to all distributions made between January 1, 2008 through December 31, 2009. Taxpayers age 70 ½ and above may donate up to $100,000 from their IRA’s to a public charity and the donated amount will be excluded from the taxpayer’s income.  The donation counts towards the taxpayer’s required minimum distribution amount for the given year.

 
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