Estate Tax Marks its New-Year Return

BOSTON (TheStreet) -- It was a good year to die.

Congressional foot-dragging meant this year passed without an estate tax, a boon to the families of famous billionaires such as New York Yankees owner George Steinbrenner and oil magnate David Duncan -- and some less famous rich folk as well.

The last-minute Tax Relief Act of 2010, a legislative compromise extending the so-called Bush tax cuts, finally establishes a new estate tax, one with a rate of 35% and an exclusion of $5 million per person. The maximum rate was 45% last year and would increase to 55% next year, with a $1 million exclusion, if the new law had not been enacted.

The long delay meant plenty of angst and confusion for those trying to develop an inheritance strategy, says Eliot Brandy, CFP and senior vice president of Sun Trust (STI) Investment Services.

"What we have seen is clients and advisers who were frozen for the past year," he says. "They were afraid to do anything, estate-planningwise, aside from small, modest gifts, even though the opportunity was there to do a whole lot more."

(STI) With tax rates finally settled, at least for the next two years, Brandy advises a review of your current will, especially if it was written in expectation of a higher or lower tax levy or exclusion threshold.

He also suggests considering a living gift to beneficiaries who would otherwise have to wait until your passing for an inheritance. In some situations, the 35% gift tax, especially in a longer-term view, may be beneficial.

(STI) "We are seeing some really good opportunities with asset valuations being down," Brandy says. "Real estate values are significantly down for many of our clients. It is a great opportunity this year and going forward to make gifts of assets that have depreciated in value, albeit you still have a gain in them. You may have bought your beach house for $1 millon dollars, it got up to $3 million to $5 million and today it is worth $2.5 million. It may still make sense to gift that home away from that perspective to save future estate taxes down the road -- which no matter how you look at it will be higher than the capital gains rates to your heirs."

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