Sunday, June 21, 2009

Notable 2009 Estate and Income Tax Changes

Our guest blogger is Bob Giordanella whose is one of the tax experts at Cowan, Liebowitz and Latman. One of the high spots of our annual seminar is Bob's survey of what is new in Taxes and Estates. I am delighted that Bob is allowing me to present his overview to you. If you wish to know more about Bob, you can visit his profile at

The start of a new year typically brings a reinvigorated sense of purpose, a list of quickly forgotten resolutions and, inevitably, tax law changes. The following are a few important estate and income tax changes of note (and, with a new Administration in Washington, more is expected to come).


Effective January 1, 2009, the federal applicable exemption amount (commonly referred to as the unified credit amount) increased from $2 million to $3.5 million. The unified credit amount is the amount that you can pass to your heirs free of federal estate and gift tax. With proper planning (requiring a will or trust and properly divided assets), a married couple can pass up to $7 million to their heirs free of federal estate tax. Depending on your state of residence, however, state estate taxes may still be owed. This exemption amount is currently in effect for 2009 only. If you were to die in 2010, your estate would not be subject to any federal estate tax, regardless of size, while if you were to die after December 31, 2010, your estate would be subject to federal estate tax if it exceeds the 2002 exemption amount of $1 million, and the maximum tax rate reverts back to 55% (from the current rate of 45%). It is widely expected that Congress will act this year to retain the current exemption levels for future years.


Effective January 1, 2009, the annual gift tax exclusion increased from $12,000 to $13,000 per donee. The annual gift tax exclusion is the amount you can give each year to another person without impacting your lifetime gift tax exclusion. There is no limit on the number of persons who can receive a gift equal to the annual exclusion. Married couples can give $26,000 to a single donee, and the money can come from one spouse’s assets. However, the couple must file gift tax returns to reflect their election to “split” the gift between them. There has been no change in the lifetime gift tax exclusion of $1 million. The lifetime gift tax exclusion, which is the portion of the unified credit amount that can be given during your lifetime, applies to gifts that are in excess of the annual gift tax exclusion amount. For example, if you were to give $100,000 to another person, both your lifetime gift tax exclusion and your unified credit amount are reduced by $87,000.


As a general rule, individuals age 70 ½ and older are required to withdraw a certain percentage of their IRA or retirement accounts (the “RMD”) every year. The current economic downturn has caused dramatic diminution in value in retirement plan assets. As a result, in late 2008, Congress passed a law which eliminated for 2009 only, the requirement to withdraw the RMD. If you have already withdrawn your RMD for 2009, all is not lost. There is still the opportunity to rollover the RMD withdrawal into an IRA account, but it must be done within 60 days of the distribution date and the entire RMD must be rolled over.


On January 27, 2009, Governor Patterson signed into law a number of changes to the statutory power of attorney form. Originally, the law was to become effective on March 1, 2009, however, the effective date was changed to September 1, 2009 to provide practitioners time to digest the changes.

The most significant change is the creation of the “Statutory Major Gifts Rider,” which is a separately executed and witnessed document giving an agent the power to make major gifts and transfers. The new law further provides that an attorney-in-fact has the authority to access records relating to the provision of health care and to make decisions relating to payment of health care services. The formalities of executing the document have also changed. The attorney in fact must now sign the power of attorney for it to become effective. The new law does not invalidate powers of attorney properly executed prior to September 1, 2009, however, it does present an opportune time for you to review your current power of attorney, as well as your other personal documents, such as your health care proxy, to confirm that these documents reflect your current wishes.


While we always recommend that you periodically review and revise estate documents to reflect changes in circumstances that may have occurred after the documents were executed, it is especially critical given these uncertain times that you revisit your estate plan now. Many wills contain credit shelter provisions which leave a sum equal to the exemption amount in trust for a spouse or children, with the expectation that sufficient assets would remain to pass directly to the surviving spouse. Given the increase in the exemption amount and the current economic downturn, such an expectation may not be fulfilled, leaving far less for a spouse than initially anticipated. In addition, the increase of the applicable exemption amount may also impact your state estate tax liability.