FOR IMMEDIATE RELEASE: February 2011

What You Need to Know About Estate Taxes

If you are handling the disposition of an estate, you are probably already aware that there was an unexpected reprieve from taxes on the estates of those who died in 2010. But if you’re involved in future estate planning for a loved one or yourself, it’s important to know that high estate tax rates have come back in force this year and beyond. The New York State Society of CPAs offers a rundown on some of the complexities of estate tax issues.

A One-Year Hiatus

Congress allowed the federal estate tax law to expire for 2010, meaning no taxes were due on the estates of anyone who died in 2010. That was good news for the families of numerous famous people—including New York Yankees owner George Steinbrenner—but it also meant many families at the more modest end of the income scale did not have to deal with estate taxes. In addition, the executors of estates of those who died last year did not have to file a tax return for the decedent’s estate with the Internal Revenue Service.

Are You Aware of all the Assets that Are Part of Your Estate?

Many individuals do not understand what kinds of assets make up their estates. Many people have a misconception that their estate consists solely of cash in their bank account. They may be in for an unpleasant surprise, however, if they don’t consider the current value of all the assets in their estate. A parent who did not have a lot of cash on hand may have owned a home that has increased substantially in value over the years, especially if it’s located in an area with high or rising property values. Add in the value of a retirement account savings or other assets and the total may quickly jump to more than $5 million. That may also be the case with a small business that family members built from scratch into a thriving enterprise, especially if the company owns valuable property or equipment.

In addition, while an estate may not be subject to a Federal estate tax, the estate’s executor may still have to pay an estate tax at the state level, depending upon the appropriate state’s laws. Your CPA can help you in the accounting and valuation of your estate to determine whether your situation calls for undertaking some tax-savvy estate planning for both Federal and state purposes.

The Tax Burden Returns

On December 17, 2010, President Obama signed into law the “Tax Relief Act of 2010.” In this bill, Congress reinstated the estate tax for decedents dying after December 31, 2009. The new rules are only temporary and will sunset on December 31, 2012. Executors of deceased taxpayers must pay taxes on an estate over $5 million (there are considerations for surviving spouses, which should be discussed with your CPA). The estate tax will be based on the new 35 percent top rate.

In light of the rules that were in effect prior to the “Tax Relief Act of 2010,” Congress afforded executors of decedents dying after December 31, 2009 and before January 1, 2011—such as the Steinbrenner Estate—the option to elect to not come under this newly revived estate tax. In this case, the estate would pay no estate tax as originally described above, but beneficiaries would be subject to the modified carryover basis rules.

A CPA Can Help

Estate taxes are complicated, so it’s wise to consult with a CPA about long-term estate plans.
Turn to your CPA with all your questions about estate tax planning or any other financial concern.