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On December 20 of 2010, Congress acted on some hotly debated tax legislation, some of which affected the Estate Tax. Thankfully, the Hidden Death Tax affecting more than 98% of estates was repealed in this legislation, and there are now many opportunities for people to plan… for the next two years. Here’s a bit of recent history on the Estate Tax and how we arrived at a temporary, two-year tax change:

The new law has raised the estate tax limits to $5 million per person while simultaneously eliminating the Hidden Death Tax of 2010. Additionally, it reduces the tax rate to 35%. The same “unlimited marital deduction” is in place that makes any amounts (even billions) estate tax free for federally recognized spouses. And, most importantly for people who really wish to plan for a legacy, the law brought back $5 million in lifetime gift tax exemptions and generation skipping tax exemptions. Does this now mean that people do not have to plan for estate taxes? No. The same planning required for couples to maximize use of both credit exemptions still has to be done just in case their estates grow.

Another big advantage of the new tax law for spouses is a “portability” feature for estate tax exemptions. Under the changed law for the next two years, if one spouse passes on not using their full estate tax exemption, then the remainder can be added to the surviving spouse’s exemptions. This means if a husband passes on leaving $2 million directly to his children and the rest to his spouse, in addition to her inheritance the wife can also get her husband’s $3 million of unused tax credits. This would leave the surviving spouse with $8 million of estate tax exemptions. But this is not automatic. In order to take advantage of this benefit, the proper elections have to be made on an estate tax return. So while there is no estate tax return required for a person passing on unless their estate exceeds $5 million, a return would have to be filed to get this benefit.

In addition to prospective benefits, the new tax law also allows a retroactive benefit for estates of decedent’s passing on in 2010. In terms of taxes, an estate can elect to be taxed under the new law or the old one. This effectively “cures” the Hidden Death Tax of 2010 if the proper steps are taken. At the time this is written, these steps do not exist because the election rules are to be created by the Secretary of the Treasury, but beneficiaries of a deceased person’s estate should discuss the possible election with their accountant as soon as possible.

Another benefit is, believe it or not, we now have a Generation Skipping Tax back in place. The Generation Skipping Tax, or GST, is generally a tax on transfers to grandchildren when children are still living. What this was designed to do was stop extremely wealthy families from bypassing a generation of estate taxes by consciously giving everything to their grandchildren with a wink and a nod to take care of their parents. These grandchildren would then leave their wealth to their grandchildren instead of their children for the same reasons. Congress caught on to this and imposed a 55% tax on top of estate taxes for transfers above the generation skipping tax exemptions.

Well, how is this a planning benefit? It is a benefit because there are now $5 million of generation skipping tax exemptions per person. This allows the exemptions to be applied, in the right fashion, to a Perpetual Family Legacy Trust ™ so that the wealth can live on, forever, without additional estate or generation skipping taxes. For more information on this strategy and to order the book The Perpetual Family Legacy, please visit

The new estate tax laws, even though a temporary fix, means that your estate plans should be reviewed with these changes in mind. There are always worlds of opportunity in tax loopholes, and Congress just handed us some huge ones.

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