The End Of The Year Is Fast Approaching

By: Valerie L. Hamlet (Dec, 2011)


As the end of the year approaches, it is a good time to take a moment and reflect on the events that have transpired thus far in your life. In the estate planning world, it is a good time to review your estate plan, your Last Will and Testament and any other testamentary documents you have. If you do not have an estate plan, now is a good time to get the process started to obtain one. If you need to make gifts or transfers prior to year end, you are running out of time.

Now is a perfect time to review your investments and testamentary documents to ensure that your end of life desires are fulfilled. For instance:

  • Will your current estate plan adequately provide for the needs of your surviving spouse and/or children? After your death, will your estate be sufficient to support your dependants until they reach the age of majority and/or support your surviving spouse for the remainder of his/her life?
  • Do you have adequate life insurance to provide your estate with the liquidity needed to pay your taxes, debts and expenses? Were you aware that some life insurance policies are underperforming due to low interest rates and without an increase in the premiums, the policy may lapse prematurely?
  • Does your Last Will and Testament have "formula clauses" that can unintentionally overfund testamentary trusts for a surviving spouse or children?

You may consider meeting with your CPA, your financial planner, or your attorney prior to year end and review your overall estate planning goals.


The federal estate tax was reinstated on December 17, 2010 when President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ("The 2010 Act"). The federal exemption is indexed for inflation at $5,000,000 and $5,120,000 for 2011 and 2012 respectively. The highest tax rate for federal estate tax is 35%. No one knows at this time what will happen to the exemption and tax rate in 2013 or beyond.

A benefit of the reinstatement of the estate tax is that a decedent's assets will again get the basis adjustment to date of death value (step-up in basis) when sold or transferred to the beneficiaries of the estate. If estate assets are sold shortly after death, theoretically, there will be little or no capital gains tax on the appreciation of those assets.

A new benefit of "The 2010 Act" is a portability feature for any unused spousal exemption, which effectively gives a married couple a joint exemption of $10,000,000. For example, if husband dies and only claims $4,000,000 of the $5,000,000 exemption to which he is entitled, his estate may elect to make the unused $1,000,000 exemption available for his spouse's future estate.

New York State residents (or people who own real property in the state of New York), should be aware that the state estate tax exemption is still only $1,000,000 and there is no portability feature for any unused exemption.


For 2011 and 2012, the annual exemption for gift tax purposes is $13,000 and a lifetime exemption of $5,000,000 and $5,120,000 respectively. That means that you can gift $13,000 to any donee (or $26,000 if jointly gifted) per year without incurring a gift tax. Any gifts over the $13,000 per year per donee exemption, will use up part of the donor's lifetime exemption. Since the lifetime exemption is the highest it has ever been, many professionals are predicting this year and next year will have the greatest transfer of wealth in the history of our country. No one can say with any certainty what will happen to the gift tax exemptions in 2013.

If your estate plan includes annual gifting (and almost ALL good estate plans should), you may want to consider the following:

  • If you are making a transfer of stock to family members or to a testamentary trust, you need to give adequate time for the preparation of the appropriate stock transfer documents so the gift can be completed prior to December 31.
  • Gifts of cash to family members made by check will need to be deposited prior to year end so that you can count the gift as made in this tax year. You may consider giving your donee a certified check instead of a personal check. The certified check is considered a gift the instant you deliver it to the donee. A personal check is not considered a gift in this tax year until it is negotiated (deposited) at the bank.
  • Gifts made to charities are NOT considered a gift for gift tax purposes and do not reduce your lifetime exemption amount. However, charitable giving is still tax deductible for your personal income taxes. If you have a charitable component to your estate plan (such as a Charitable Remainder Trust), you will maximize your deduction during your life and after you are gone.
  • Paying for the college tuition of a grandchild is NOT considered a gift for gift tax purposes as long as you make that payment directly to the educational institution. Payments made to your child's or grandchild's 529 education account IS considered a gift for gift tax purposes. In some situations, it may be advantageous to allocate these types of gifts over a five year period.

As always, please contact your Dermody, Burke & Brown advisor with any questions you may have about any of the above issues and how your situation may be affected by current tax regulations.


The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.

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