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Estate Tax Exemptions: Past, Present, and Future


In the 1980’s and 1990’s, planning to minimize estate taxes was all the rage because people’s estates were growing rapidly due to rising stock and real estate prices, while at the same time, the estate tax exemption was fixed at $600,000. Many of our clients set up family partnerships, put stocks and real estate into them, and then made annual gifts of shares in the family partnership to their children or trusts established for their children (and often grandchildren as well), keeping the gift under the annual exclusion amount, which was then set at $10,000 per individual per year.

In the late 90’s and into the 2000’s, the estate tax exemption increased from $600,000 all the way to $3.5 million in 2009. That increase in itself led to less need for estate tax planning because of the relatively few estates which exceeded the $3.5 million limit (which could usually be a combined $7 million limit for a married couple who planned their estate using a proper trust). Furthermore, the precipitous decline in real estate values in the past three years had reduced many estates even more, and stock prices, though fluctuating wildly, have ended up now about where they were 12 years ago, as measured by the Standard and Poor’s 500 Index.

With year 2011 now just seven months away, there is a good chance the estate tax exemption will scale back to $1 million per person. If Congress does not enact any estate tax law changes, effective January 1, 2011 and thereafter, estates exceeding $1 million after deductions will be at risk. And the top tax rate will be back up to 55%.

With this tax regime on the horizon, it is advisable for many people to revisit the use of family partnerships, family limited liability companies, and gifting trusts to mitigate the impact of the estate tax. If you have more than $1 million, or if you are married and together have more than $2 million and already have a proper living trust in place, you may want to consider putting a cap on your estate through use of the family partnership or LLC and annual exclusion gifting. Recent case law has tightened up the rules in these areas, but with proper, up-to-date planning, you can take advantage of these time-tested planning strategies to preserve more of your estate from the tax man.

- Attorney Mark L. Dodds