Banking & Finance Law Report

Tag Archives: estate planning

Federal Estate Tax and Portability

As a part of the tax changes enacted by Congress in late 2010, the concept of "portability" was introduced into the estate tax law. The implications of this change will be of interest to professionals, business owners and executives.  Careful consideration must be given to the results of estate plans that incorporate this change in the law.

Under portability, when the first spouse dies, his or her estate can elect to transfer any federal estate tax credit (currently equal to the tax on $5,000,000 but scheduled to fall to $1,000,000 under current law) of the deceased spouse to the surviving spouse. Portability permits one spouse to leave all of his or her property to the other spouse without the use of a credit shelter trust and still avoid tax on an amount equal to twice the credit at the second spouse’s death. Under prior law, most married persons with estates equal to the amount of the credit equivalent created a trust to hold the portion of their estate equal to the credit in order to avoid losing their credits. This trust, known as a credit shelter trust, does not qualify for the marital deduct and, thus, is not subject to federal estate tax in …

Historically Low Interest Rates Create Estate Planning Opportunities

For good or for bad, interest rates are currently near all-time lows, including the “applicable federal rate” (“AFR”) which is used to set minimum interest rates for certain gift and estate tax planning techniques. While bankers and financial institution executives routinely consider the implications of such low rates for their institutions, they also should carefully consider the opportunities these low rates create for their estate planning and for that of their customers. Community bank owners and executives, in particular should not overlook these techniques that may help persevere years of wealth creation.

The October 2011 AFR is 0.16% for short-term obligations (up to 3 years), 1.19% for mid-term obligations (more than 3 years, up to 9 years), and 2.95% for long-term obligations (longer than 9 years). Such low interest rates could make this a good time to consider several estate and gift tax planning strategies that are generally more beneficial during periods of low interest rates. Here are some common techniques for bankers to consider: …