The State of Estate Planning

I know that I might be breaking my promise not to over-blog but readers should know by now that when there is something important happening in the nonprofit world in planned giving, I am going to say something.  And, of course, the question I always ask myself is what can I add to this discussion that others are missing?

So, here is my short take on the estate/gift/gst changes from the Tax Relief Act of 2010 (aka The Please Re-elect Me/Us Act of 2010) with a focus on info fundraisers should be aware of  (note – if you like this, I have to give credit to a few colleagues who made some improvements to my original draft; if you don’t like it, blame it on me):

Estate Tax Law Overhaul

Trusts and estates attorneys, financial planners and even fundraisers have been anxiously waiting for something to happen with the estate tax for years.  Actually, 10 years to be exact, as no one in the field believed we would ever reach a year of estate tax repeal – which we did in 2010.

Now that we have a change in the law, its incumbent on us to find out what we now have for an estate tax system.

The following is a summary of the relevant points from the Tax Relief Act for those working in or around the nonprofit community, particularly planned giving and major gift fundraisers:

  • This is only a two year fix. Yes, in another two years we are going to be back where we started. The only question will be which party is in a better position to impose its will.  Stay tuned for a rerun of the same planning uncertainty when 2012 winds down and we are again facing a return to the 2001 estate tax laws of 55% highest federal rate and lifetime exemption of $1 million.
  • Husbands and wives, combined, can pass $10 million to heirs without a penny of Federal estate tax ($5 million per person estate tax exemption). This sounds extremely generous but individuals always need to be wary of their home state’s estate tax, which can be as much as 16% (like New York).  The new tax law also reinstates something called the State Death Tax Credit, which is the equivalent of giving states a payment of 16% of federal estate taxes collected – which may spur many states to reduce or eliminate their current estate taxes.
  • Estate planning for spouses just became much simpler. Under prior estate tax regimes, it was very important for couples with total assets above the lifetime exemption amounts to do careful estate planning to preserve each others’ lifetime exemption.  This typically required marital exemption trusts and/or separating ownership of joint assets.  The Tax Relief Act now allows executors to apply any unused portions of a pre-deceased spouse’s lifetime exemption toward the surviving spouse’s estate.  This greatly simplifies estate planning for spouses but individuals will need guidance from the estate planning community on practical applications of this new provision.
  • The “unified” gift and estate tax is unified again. Individuals once again will have the option of gifting during life or waiting until their passing to use up the $5 million lifetime estate/gift tax exemption.  Additionally, the law unifies the generation skipping tax with estate and gift taxes.  In theory, this means that a grandparent can gift up to $5 million to grandchildren without incurring any gift, estate or generation skipping tax liability.  The tax rate for all three types of taxable gifts, once the $5 million exemption is used up, is 35%.  It is worthwhile to note that many individuals may be advised to make generational transfers under the $5 million exemption during this two year window – with the potential for more uncertainly looming ahead.

While these points may seem applicable only to non-charitable estate plans, the nonprofit world should be informed of these law changes for several reasons.  Firstly, donors will want to hear from planning professionals about the new state of estate taxes so there will be opportunities to bring your supporters together for seminars on related topics.  Secondly, donors will be revisiting their estate plans, presenting a good opportunity to be included in a donor’s estate plan.  Lastly, education of donors in the best practices of estate planning – one of the prime planned giving marketing techniques – will be more relevant than ever in ensuring that charitable intents are realized.

And, for those interested more details – there may be a few of you – check out this most recent post from Attorney Martin Shenkman’s website:

His summary confirmed my thought that this new law is not the end of uncertainty – actually, it’s the beginning of a whole new era of uncertainly in estate planning.


  1. Thank you for the update. I read Marty’s analysis, which is from the perspective of an estate planning attorney and not a planned giving professional.

    The number of estates that will be impacted by the new estate tax rates in 2011 and in 2012 should not be more than a total of 2,500 each year. 2010 becomes a total washout of Federal Estate Tax. The big move will be for individuals to make their domicile a state that has no Estate
    Tax. The key question will be how Congress will find a way to increase tax revenue without raising rates over the next ten years. Is a VAT coming?
    A flat income tax on all income without any deductions?

    Maybe I am wrong, but I am beginning to feel that the Federal Estate Tax will go away at the end of 2012 and the charitable deduction is on its last legs. There was an article in the Sunday New York Times (12/19/10) business section making the case to eliminate the charitable deduction in its entirety and I suspect that this is the beginning of what will be a big push. If what I think comes to pass over the next few years, most charities will have to severely cut back on all staff. I guess that I should think that I had a good run and just smile.

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