On August 2, 2011, President Obama signed the Budget Control Act of 2011 (the “Act”), which may lead to a reduction in, or elimination of, many benefits of estate tax planning strategies that are available to you under current law.
Currently, a law passed near the end of 2010 allows for an increased unified transfer tax exemption amount of $5 million. This means that under current law, during 2011 or 2012, you can transfer $5 million (less any previous taxable gifts made) during your life or after your death without having to pay any estate, gift, or generation skipping transfer tax. This new law is currently set to expire on January 1, 2013, and absent Congressional action, the exemption amount will decrease to $1 million.
However, the Act will create a bipartisan joint committee charged with proposing tax legislation changes aimed at raising $1.5 trillion over 10 years. While the specific scope of these changes is unknown at this time, there is a possibility of wide ranging changes that could reduce the exemption amount and eliminate the potential benefits received from estate tax planning strategies involving discounting assets, Grantor Retained Annuity Trusts (“GRATs”), sale transactions, dynasty trusts, and other notable techniques. In sum, the Act may eliminate (i) the efficacy of many estate tax planning strategies that have been utilized for decades, and (ii) the new estate tax benefits made available by the 2010 legislation, far before the current sunset date of January 1, 2013.
Members of the Estate Planning and Tax Group, Gould Cooksey Fennell, P.A.