Tax Relief Act of 2010, Enacted December 17, 2010

Posted on December 17, 2010 by Gary A. Phillips

It is official. President Obama signed into law Friday the “Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010.” The law removes (for now) a good deal of the uncertainty that existed with the repeal of the estate tax in 2010 and a return in 2011 to the estate and gift tax exemptions and rates of 2001.

The major gift, estate and generation-skipping tax provisions of the Act are as follows:

  • Beginning January 1, 2011, the estate, gift and generation-skipping tax exemption is $5 million per taxpayer ($10 million per couple) and the tax rate is 35% (beginning in 2010).
  • The estate tax exemption for a deceased spouse is portable, meaning the surviving spouse can use the unused estate tax exemption of the “last deceased spouse.”
  • The lifetime gift tax exemption increases from $1 million to $5 million, meaning the gift tax exemption is unified with the estate tax exemption. This presents many planning opportunities for taxpayers to transfer significantly more wealth during their lifetimes without paying gift tax.
  • Two year GRATs are still permitted.
  • For decedents dying in 2010, executors have a choice. The default rule is that the estate tax regime applies at a 35% rate and a $5 million estate tax exemption. The executor can opt out of the estate tax regime and opt for the carry-over basis regime. The due date for the estate tax return and/or the return reporting carry-over basis is now nine months following date of the enactment of the Act (September 17, 2011), and not nine months from the date of death.
  • The rates and exemptions are temporary and apply only in 2011 and 2012, at which time the law will need to be revisited again.
     
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Legislative Update: Estate Tax Provisions

Posted on December 10, 2010 by Gary A. Phillips

There has been a flurry of activity in the estate tax arena in the past few days and we wanted to keep readers updated. The first item was Senator Baucus’s (D-Montana) new estate tax proposal introduced on December 2, which, in summary, would have reinstated the estate tax at 2009 levels, meaning a $3.5 million exemption amount ($7 million per couple) and a 45% estate tax rate. This piece of his proposed legislation provided for an effective date of January 1, 2010, but would have allowed 2010 estates to elect to choose the no estate tax and modified carry-over basis regime that is currently in place for 2010. Other interesting items from Senator Baucus’s proposal included the lifetime gift exemption increasing to $3.5 million (effective on the date of the introduction of his bill, or December 2, 2010) and a minimum 10 year term for GRATs, with the GRAT remainder interest required to have a value greater than zero (effective on the date of enactment of the legislation). This legislation was voted down in the Senate on December 4.

Senator Baucus’s proposal was overshadowed on Monday by President Obama announcing his compromise with Republicans on the extension of the Bush tax cuts. Along with an agreement to keep the top income tax rate at 35% for all taxpayers for an additional two years, with regard to the estate tax, President Obama announced for two years, beginning in 2011, the estate tax rate would be 35% and the exemption per taxpayer would be $5 million.

Yesterday, House Democrats voted not to introduce President Obama’s tax plan for debate, in a move to negotiate some of the components of his plan. Thus, at this time, it is unclear what the components of new tax legislation (if any) will be. If no law is enacted, beginning January 1, 2011, the estate tax rate would be 55% with a $1 million exemption per taxpayer.

We will keep you updated as developments occur.
 

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