Trusts and Estates: Change in Individual Exemption

On January 1, 2009, the individual exemption for federal estate tax increased from $2.0 million to $3.5 million per person. This change will affect many people and presents several issues:

• Those with total net assets of $4.0 to $7.0 million may no longer face a federal estate tax at death. Of course, if you are a Minnesota resident, Minnesota still has a separate estate tax and the individual exemption remains at $1.0 million per person ($2.0 for a married couple) and is not scheduled to increase. With proper planning, it may be possible for a Minnesota resident to defer or limit the Minnesota estate tax. If you have not addressed this issue in your current planning documents, we recommend that you consider doing so.
• As a result of the increase in the federal estate tax exemption, combined with the decline in value of securities and real estate during the past year, many people may need to revisit their estate planning documents to make certain they meet their current objectives.
• There are a variety of proposals in Congress dealing with the dramatic changes that are currently scheduled to become effective as of January 1, 2010 (the complete repeal of the estate tax) and January 1, 2011 (the reinstatement of the federal estate tax at the 2001 exemption of $1.0 million per person and a top marginal rate of 55%). Because we do not know what the outcome of the proposed legislation will be, we cannot predict at this time whether additional changes will be needed in 2010 and later. Monitoring developments in this area will be important over the course of the coming year.

Please contact an attorney in our wealth management practice if you would like to discuss your particular situation with regard to any of these matters.