2002 Newsletter

by Jerri Blaney, P.A.

There are several important changes in the tax law and Florida law regarding estate plans of which you should be aware.

The Economic Growth and Tax Relief Reconciliation Act of 2001 provides for the complete repeal of the federal estate and generation skipping transfer taxes effective January 1, 2010 (the federal gift tax is not repealed). The repeal sunsets on January 1, 2011. Thus, under the current act, the repeal of the federal estate tax will last only one year. At that time, the estate tax system reverts to its present form. This means taxpayers need to review their estate plans to determine the impact of the present Economic Growth and Tax Relief Reconciliation Act of 2001 and in addition, will need to review their plans as Congress continues to make changes to the Internal Revenue Code.

Beginning January 1, 2002, the estate and gift tax exemption is one million dollars. January 1, 2004, the estate exemption increases to $1.5 million dollars, $2 million dollars in 2006 and $3.5 million dollars in 2009. The estate and generation skipping transfer taxes are scheduled to be repealed January 1, 2010. On January 1, 2011, the estate tax is reinstated and the estate tax exemption is $1 million dollars.

The gift tax exemption increases to $1 million dollars January 1, 2002 and remains there.

The top estate tax rate drops over a period of years. In 2002 it is 50%, in 2003 it is 49%, in 2004 it is 48%, in 2005 it is 47%, in 2006, it is 46% and in 2007 it is 45%.

The one million dollar exemption equivalent effective January 1, 2002, will make it possible for a married couple to give away during their lifetime or upon their death, up to $2 million dollars per married couple without incurring any transfer taxes. This amount will increase under the schedule as the exemption equivalent increases.

Currently, when a person dies his property is entitled to a step up in basis to its fair market value on the date of death. Under the new act for those dying after 2009 (when the federal estate tax is scheduled under the act to be repealed), there is a modified carried over basis system.

Each person should review his or her estate to determine the impact of the new law.

ELECTIVE SHARE. The Florida legislature has adopted a new statute governing the right of surviving spouses. Under the new statute, the spouse is entitled to 30% of the elective share which now includes virtually all of a person's assets. Under previous statutes, the elective share included only probate assets and specifically did not include assets held in a Revocable Trust. Thus, it was common in a second marriage situation for clients who had previously been married and desired that each spouse's children should receive that spouse's assets upon their death to provide for that result through a Revocable Trust. The statute is very complicated and does not give full credit for satisfying the elective share to assets held in trust. This statute means that anyone who is remarried should have their estate plan examined to see that it satisfies the new law.

LIMITATION ON DURATION OF TRUST. The Florida legislature has revised the rule against perpetuities which is a rule which says how long trusts can last. There is a trend in all states to abolish this rule completely or extend it significantly. In Florida's case, the new law amends the existing statute to make the limit for trust 360 years. This statute makes it possible to establish a family trust upon death which would benefit family members for a period of up to 360 years for $1,000,000.00 for each spouse ($2,000,000.00 total). Such a trust would not be subject to further gift or estate taxes for 360 years.

Each person should review his or her estate plan to determine if it should be changed in light of the changes in the law.