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Reforms make estate planning more certain

iStock photo used with permission.

The $858 billion tax bill approved by Congress and signed by President Barack Obama carries with it a number of key changes on estate planning, local lawyers say.

Among the most notable are provisions exempting estates smaller than $5 million for single persons and $10 million for married couples from the federal estate tax. Other changes include a lower overall maximum estate tax rate of 35 percent, according to David Pettig, of Pittsford-based Pettig + Associates PC.

Still, he cautioned, those changes will not impact all or even most.”[This is] less than one half of one percent of the population,” Pettig said.

Naples-based Michael Robinson agreed with that statement, but questioned the timing of the changes.

“I think that what they did with the estate tax, given the current federal deficit, was irresponsible,” he said.

David Pettig

Both Robinson and Pettig also cited a change in the law known as portability. Previously, although each spouse of a married couple was allowed a full estate tax exemption, they would only get full use of the exemption if an attorney set up a trust to protect it. Under the new provisions, the exemption is portable — after the death of the first spouse, his or her exemption is transferred to the other spouse.

“Portability is going to make estate planning a lot easier for a lot of people,” Pettig said. “It will be easier for both the planning professionals and their married clients because ownership of assets will no longer have to be moved from one spouse to the other to take full advantage of the estate tax exemption.”

Robinson believes, however, that the provision may apply to, and thus complicate the resolution of, some smaller estates, due to increased paperwork.

Pettig also noted that the provisions of the new bill also streamline the way capital gains are handled, allowing them to be taxed under the estate tax. 

“The changes that were in effect for 2010 prior to this legislation would have shifted the tax from an estate tax to a capital gains tax,” he said. “That is good because the capital gains tax rates are significantly lower than the estate tax rates. However, the record-keeping required to keep track of capital gains on virtually all types of assets would, I believe, substantially reduced the tax benefit.”

Both Pettig and Robinson noted that the changes impact federal estate taxes only, and do not apply to the New York state estate tax.