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Greenbaum, Rowe, Smith & Davis LLP Client Alert

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Act”). As you may know, this Act extended for two years the current income tax rates and other income tax provisions first enacted during President Bush’s administration. In addition to these income tax extensions, the Act also made major changes to the Federal estate and gift tax laws, some of which are as follows:

The estate taxes imposed by New Jersey, New York or any other states are unaffected by the changes made to the Federal law. Thus, for example, the New Jersey estate tax exemption remains at $675,000, while the New York estate tax exemption remains at $1 million. In addition, there is no portability of exemptions for state estate tax purposes. As such, state estate taxes can still result in a significant expense to a decedent’s estate.

For purposes of illustration, the New Jersey and New York estate taxes for various size taxable estates are as follows:

Taxable Estate New Jersey Tax New York Tax
$1,000,000 $33,200 -0-
$2,000,000 $99,600 $99,600
$3,000,000 $182,000 $182,000
$5,000,000 $391,600 $391,600
$10,000,000 $1,067,600 $1,067,600
$20,000,000 $2,666,800 $2,666,800

In light of the changes to the Federal estate tax law, it may be advisable that your estate plan be reviewed to see if changes are warranted. In particular, the formulas used in existing Wills to determine how much passes to which persons and trusts may no longer produce the intended results and could result in unexpected dispositions, or result in state death taxes which clients may wish to avoid.

In addition to having your estate plan reviewed for tax reasons, you may also want to review the persons named as your primary and secondary beneficiaries, terms of any trusts for family members, and the individuals named as your executors, trustees, and guardians. 

Finally, since there is the possibility of the increased exemptions and lower rates expiring in 2012, clients may wish to take advantage of the planning opportunities that are available while the current tax law is still in effect. For example, the higher gift tax exemption will allow clients to make additional gifts without paying Federal gift tax. Since the Act did not address either grantor retained annuity trusts (GRATs) or valuation discounts, many estate planning techniques can be accomplished more effectively utilizing the additional gift tax exemption and the current low interest rate environment.