Benjamin Franklin said that nothing is certain in life but death and taxes. As someone said more recently, taxes are the only one of the two that you can postpone or reduce.
Though you can’t avoid the inevitable, you can and should take steps to protect those closest to you with careful estate planning. This applies whether you are a multimillionaire at the twilight of your career or a physician who recently finished or is about to finish training.
In the last few weeks of 2010, Congress and the president agreed to extend the so-called Bush tax cuts through 2012. The same law made several very favorable changes in federal estate and gift taxes, and these changes offer opportunities for significant tax savings.
Where we started
In 2001, the federal tax law was amended to increase the threshold exemption from federal estate taxes. Over a period of years, the exemption rose to $3.5 million per person, which meant that, with careful planning, a husband and wife could pass as much as $7 million to the next generation free of federal estate tax.
Then, in 2010, the federal estate tax expired for one year. Those who died during 2010, which included some very wealthy people, could avoid the estate tax altogether. Many people thought Congress would act long before the year of a no estate tax arrived, but stalemate in Washington, D.C., prevented any action from being taken.
The 2001 law provided that the estate tax was to spring back into existence in 2011, but at the rates and with the exemption that were in effect before the 2001 law. That meant that the estate tax rate could be as high as 55 percent, with an exemption of only $1 million. A reversion to that law would have “caught” many people in the federal estate tax, since the tax is imposed on, among other assets, retirement accounts, certain life insurance and homes owned. more »