The Straight Scoop on the New Tax Law and Your Estate Plan

Tax laws are confusing on a good day…

What you can deduct…

What you have to claim…

And with all the recent changes to the laws, it’s almost impossible to know if you’re doing the right thing.

We’re hoping this will help.

Here’s the straight scoop on how the new federal tax law affects your estate plan (Important Note: these are changes to the federal tax laws – Massachusetts tax laws, including the Massachusetts estate tax laws, remain unchanged):

A Quick and Dirty List of What Changed

On December 16, 2010, Congress passed a new federal tax law that changes how your estate should be planned:

  • The federal estate tax has been restored retroactively to Jan. 1, 2010.
  • You can pass $5 million through your own estate tax-free.  That amount will be indexed for inflation after 2011.  Anything over the $5 million mark is taxed at a maximum of 35 percent.
  • If you die in 2011, your surviving spouse can add any of your unused exemption to theirs – a new concept of portability. In calculating the total exemption (up to $10 million) the amount that’s portable is not indexed for inflation, but your surviving spouse’s own exemption amount is.
  • The gift tax still applies but the amount you can give away in your lifetime has been raised from $1 million to $5 million starting in 2011.  This amount will be indexed for inflation as well, and you and your spouse can combine your lifetime limits for a total of $10 million.  If you plan to give away more than $5 million, the tax rate on the excess will remain at 35%.
  • Generation-skipping transfer tax has been reinstated starting in 2011.  This tax is applied on top of the estate or gift tax to any assets you pass on to your grandchildren or to a trust you establish for their benefit.  The $5 million exemption applies to this tax as well.  Portability does not apply to the generation-skipping transfer tax.
  • When considering income tax on inherited assets, remember that the cost basis for the assets is adjusted to the fair-market value on the date the owner dies.  This will help limit the capital-gains tax that your heirs have to pay if they sell the asset.

So, What Do You Do Now?

Call your estate planning attorney (or hire one if you don’t already have one) and talk to him or her about the changes.  Be sure to ask about the following issues, too:

If you’ve been waiting to see what Congress would do with the estate tax before you took action on an estate, you’re in luck.  Some of the key deadlines that are normally 9 months from the date of death have been extended for people who died in 2010:

·     Filing the return

·     Paying any estate tax due

·     Disclaiming or turning down an inheritance

·     Applying the generation-skipping transfer tax

When you start planning your estate, make sure you have your hands on records showing what your assets cost when they were purchased.  If you can’t prove what the assets originally cost, the IRS is going to assume that the cost was zero and your heirs could be stuck paying capital gains tax on the total sales amount.  For the sake of your heirs, keep all your purchase records in one place, preferably with your estate planning documents.

If you’ve been chosen to be the executor of someone else’s estate, document every conversation and always follow up verbal communication in writing.  If the family disagrees with what you recommend, you’re probably better off doing what they want to do.  Just make sure they sign documentation releasing you from liability and indemnifying you from any losses they take as a result.

If you live in Massachusetts and have an estate plan or are thinking about planning your estate and would like an expert opinion on how to deal with the most recent changes to the estate tax laws, call us at (978) 263-6900 to schedule your Family Wealth Planning Session today.  We can identify what needs to be done to ensure that you have the right plan in place to take full advantage of all the recent changes.  Our Family Wealth Planning Session is normally $750, but this month I’ve made space for the next two people who mention this article to have a complete planning session with me at no charge.  Call today  – (978) 263-6900 – and mention this article.


To your family’s health, wealth and happiness!



David Feakes


P.S.  Want to get started on the most important planning you’ll ever do for your family?  Give our office a call at (978) 263-6900 to get started.  You’ll be so glad you did.


David Feakes is the owner of The Parents Estate Planning Law Firm, PC – a law firm for families in the Acton, Massachusetts area.  David helps parents protect the people they love the most.  If you would like to receive David’s exclusive, free report, “Six Major Mistakes To Avoid When Choosing An Estate Planning Attorney,”  you can get it right here.


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The Parents Estate Planning Law Firm, PC

At The Parents Estate Planning Law Firm, we answer your questions at your convenience; we stay in frequent communication; and we meet to discuss changes in life circumstances and in the law to ensure that your assets are protected.

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The Parents Estate Planning Law Firm, PC is a unique estate planning law firm serving families in Massachusetts. Our team is committed to helping parents at all stages make sure their loved ones are completely protected if the unexpected happens, while making things as easy as possible for their families.

31 Nagog Park, Suite 301, Acton, MA 01720 | 978-263-6900 | [email protected] |