Prepare Your Estate for 2010 Tax Law Changes

As we prepare to ring in 2010, we also need to prepare for some major tax law changes?unless Congress intervenes soon. Take a look at these three changes that may affect your estate plans should something unexpected happen to you.

Estate Taxes
In 2010, estate taxes are scheduled to be repealed, allowing estates to pass to heirs estate tax-free. But the tax is back in 2011 for estates worth more than $1 million, and the rate of tax could reach 55 percent.

The Generation-Skipping Transfer Tax
In 2010, the generation-skipping transfer tax is also scheduled to be repealed, allowing gifts of any amount made to someone more than one generation below you (e.g., grandchildren) to be made tax-free. The tax will reappear in 2011, however.

The Taxes on Your Family's Inheritance
For estates larger than $1.3 million ($4.3 million if passing to a surviving spouse), this change, unlike the other two above, adds a whole new tax just for the year 2010. In 2009, for most assets inherited, the beneficiary's cost basis for that asset is generally equal to its value as of the deceased's date of death. But in 2010, the cost basis for the asset will be the value it was originally purchased for (see chart) giving the beneficiary a hefty tax bill and a lot of headache if he or she chooses to sell what was inherited.

Take Action Now
Meet with your estate planning attorney to revise your estate plan so it meets your needs and reflects your circumstances. You may also consider options like charitable remainder trusts that allow you to diversify your assets, defer taxes and meet your charitable giving objectives. Contact Ana Alvarado at (800) 340-GIFT or (508) 793-2379 or aalvarad@holycross.edu to learn more about tax-wise ways to provide support toward education.

Don't Let Your Loved Ones Inherit a Big Tax Bill

Cost basis of building in 1965	Fair market value of building at your death	Taxable amount if heir inherits and sells in 2009	Taxable amount if heir inherits and sells in 2010
$100,000	$300,000	$0	$200,000

The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.