Back in 2001 there was a sweeping tax act passed, and one of the provisions was a repeal of the federal estate tax in 2010. However, the estate tax will be back in effect in 2011 and the change in the exclusion amount from the levels that we saw in 2009 should be of profound interest to anyone who is planning their estate or monitoring their existing plan on an ongoing basis. In 2009 the estate tax exemption stood at $3.5 million, and the top rate of taxation was 45%. To look at a broader overview, the exclusion amount in 2006 through 2008 was $2 million, and it was $1.5 million in 2004 and 2005.
There is the possibility of an adjustment being pushed through congress later this year, but if things remain as they are the 2011 estate tax exemption amount is going to take a big drop, going from that $3.5 million 2009 level all the way down to $1 million. The last time the exclusion was this low was back in 2002, and the top rate is going up as well; it will be 55% in 2011. So if you have an estate plan in place that was created with the expectation of a larger exemption, you may want to revisit the details and make adjustments if necessary.
There are those who proceed with the general assumption that estate tax is not imposed on people of modest means, but when it gets down to the $1 million level everyone needs to sit up and take notice. Many individuals who are in their twilight years bought their homes decades ago and have seen them appreciate significantly. When you combine the value of your home with your other assets you may be closer to this threshold than you think. Take heed of the incoming 2011 estate tax and take action if it is going to put the value of your legacy at risk.
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