New Estate Tax Laws, Time to Plan

“One difference between death and taxes is that death doesn't get worse every time Congress meets”.


Will Rogers

Confused about the federal estate rules and regulations? Wonder what the tax rules are? Did George Steinbrenner (owner of the New York Yankees) get it right when he died in 2010…should he have waited? We thought we would recap the current estate and gift tax rules. Note, they only apply for 2011 and 2012 and will change again, maybe. Here you go:



1. The minimum federal estate and gift tax rate is 35%,

2. The “unified tax credit exemption equivalent” is $5m … a fancy way to say that up to $5m in assets can be passed on to heirs either during your lifetime and at death (hence the term unified) without federal taxation,

3. The generation-skipping transfer tax rate is 35% with a $5m generation skipping transfer tax exemption. Many individuals (grantors) who might otherwise leave their entire estates outright to their children will instead allocate their generation-skipping exemptions to “generation-skipping transfer tax exempt trusts” for their children and grandchildren. Potential benefits include:

a. the trust will escape all transfer taxes when the children die and will pass tax-free to the grandchildren,

b. the trust may be protected from the claims of creditors and, to some degree, from claims of ex-spouses. Had the trust property been left to the children outright, the property would be subject to such claims. In some states, property acquired by gift or inheritance from a third party is not subject to division in divorce proceedings and therefore, would not be subject to claims by an ex-spouse,

4. The maximum estate tax unified credit between spouses is now “portable” meaning that a surviving spouse can elect to use any unused portion of the estate tax credit of the predeceased spouse (currently $5m). so, with the right planning, married couples can effectively shield up to $10m in assets from federal estate and gift tax,

5. Estate tax deferral – payments of estate tax attributable to the value of a closely-held business can be deferred for up to 5-years.



Remember, these rules only apply for planning during 2011 and 2012. After that, the rules “sunset” (we think that’s a cute phrase) and revert to the 2001 rules.

Article Authored by Ed Davis.  edavis@ciharvest.com
U.S Treasury Circular 230: Any tax advice included in this written or electronic communication was not intended or written to be used, and cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency, nor can this be used for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed herein.

Year to Date Commercial Construction Contracts are Down

Commercial Construction contracts for future work through May 31, 2011 are down about 10% from this time in 2010 per McGraw Hill Construction.  More info http://tiny.cc/pzgb5. 

Lending Update in 2011

By John Gibson, Partner

We are hearing that banks say they have money and want to lend it but they can't find enough qualified borrowers. At the same time, borrowers who are looking for loans say their banks are just paying lip service, looking for a way to turn them down.

Who is right? In a way, both are.

Uncertainty and fear have produced cautious bankers. 2011 is a little better than 2010 and much better than 2009. Banks are tip-towing back in, but they are fearful. They are afraid for many reasons. Fear of the unknown. Fear of loss. Fear of federal and state regulators glaring over their shoulders and writing down loans. Even Fear of losing their jobs.

What can you do to improve your chances in this environment?

It's back to basics. Start with the 3 C's; Character, Credit, and Collateral. It takes all three legs for the stool to stand. You have one first impression to win over the banker. Don't give them an excuse to turn you down. You must have a complete loan package. If you don't it will be set aside and you lose critical momentum. Point out the positives and explain the negatives. Answer before asked. All loan proposals have negatives. Letting them know that you aware of yours, not trying to hide them and what you are doing to correct them scores big character points with the lender.

In short, be prepared, stay positive but realistic and don't forget the three C's.