The president and Congress have finally agreed on a tax law…for now. President Obama signed a tax plan that includes new guidelines for the estate tax, but only for the next two years. Congress will have to revisit the tax plan before 2013.

The law includes a historically high exemption of $5 million per individual, and anything over that threshold will be taxed at a historically low rate of 35 percent. Furthermore, the law once against marries the gift tax to the estate tax, so the exemption and tax rate for gifts made after Dec. 31, 2010 will be equal to the applicable estate taxation.

Additionally, the estates of post-Dec. 31, 2010 decedents have the option to transfer any remainder of $5 million exemption to their surviving spouse.

But what matters for the estates of those who died this year is the decision between taking advantage of the zero-percent tax rate of 2010, or electing to file the final tax returns under the new 2011 law.

While a zero-percent tax rate is awfully attractive, under the 2010 law, heirs are required to pay capital gains on inherited assets over $1.3 million, or surviving spouses inheriting over $3 million. Under the 2011 law, these inheritances would be covered under the $5 million exemption.

Any change in rules can be confusing, but if you have questions about handling a 2010 estate or planning your estate for the next two years under the new tax law, I urge you to get in touch with your estate planning attorney.

James D. Perry

2010 has been a financially rough year for much of America. But many non-profit organizations still say they’ve seen a small increase in charitable giving this year over 2009 numbers.

If you’re in the financial position to give this year, you have a lot of opportunities to do so. Solicitations are everywhere, including direct mail, in churches and community centers, and outside shopping malls and stores. The question then becomes how to divvy up your charitable resources.

The New York Times’ Ron Lieber suggests you first examine “Why” you want to give before tackling the “Where” and “When.”

Why do you give? Do you have a personal connection to a particular charitable cause or feel a responsibility for supporting an organization’s mission? We can all agree that breast cancer research is important, but if it hasn’t touched your life, perhaps you’d rather support animal welfare or after-school education programs.

Once you’ve decided what causes you want to support, you’ll need to determine exactly to what organizations you’re going to give.

Do your research on charitable organizations to see who will use your money most efficiently. Websites such as Guide Star and Charity Navigator provide givers with tools to make informed decisions and tips for charitable giving.

Finally, if you want to give, don’t make a hasty decision just because the deadline for 2010 charitable tax deductions is looming. If you feel you can’t make an informed decision this month, you might want to just roll over your charitable budget into 2011 where you can spread the wealth throughout the year.

‘Tis the season for giving.  But, give with purpose and put your money to good use.

James D. Perry

Christmas may be coming early for estate planners with Congress finally making moves to answer our tax questions.

Last year, Congress hemmed and hawed over the estate tax, but ultimately failed to act. On Jan. 1 of this year, the tax lapsed for one year per Bush-era tax cuts, but was expected to return in 2011 at Clinton-era levels: 55 percent tax rate with the first $1 million in property exempted.

All year, we’ve been waiting to hear whether the government would reinstate the tax, at what rate, and when it would go into effect.

The current bill in the Senate represents a compromise struck by President Obama and Republican leadership. It reinstates the estate tax on Jan. 1, 2011 at a 35 percent rate and a $5 million exemption per individual for two years. In 2013, the law would sunset and we’ll be looking at a 55 percent rate and $1 million exemption.

It also gives the executor of a 2010 estate a choice on whether to file their last tax returns under the 2010 or the 2011 rules. Because of 2010 changes to capital gains taxes, which value assets at their original acquisition cost rather than today’s assessed value, some estates may fare better under the 2011 rules than the 2010 rules.

The Senate bill has already met some opposition from House Democrats who would rather see a 45 percent rate and a $3.5 million exemption – as it was in 2009. But Congress-watchers warn that such an amendment would surely be rejected by the Senate.

The new year is only 16 days away (as of Dec. 15). Here’s hoping Santa brings us some tax predictability in 2011.

James D. Perry