Insight
Changes in Federal Estate and Gift Tax System
On December 17, 2010 Congress passed the Tax Relief Act which makes the following changes to the federal estate and gift tax system:
• Effective January 1, 2010, each individual is entitled to a $5,000,000 federal estate tax exemption, which will be indexed for inflation beginning in 2012.
• Effective January 1, 2011, the federal gift tax system will be reunified with the estate tax system. This means that the current $1,000,000 federal gift tax exemption will increase to $5,000,000 per individual for 2011 and 2012.
• Effective January 1, 2010, the top federal estate tax rate is 35% for estate, gift, and generation-skipping transfer taxes.
• The executors of the estates of individuals who die in 2010 may elect to have the current estate tax rules apply (no estate tax and modified carryover basis). If no election is made, the new Tax Relief Act estate tax rules apply ($5,000,000 exemption, top tax rate of 35% and stepped-up basis on all assets for income tax purposes) to 2010 estates.
• For 2010 the generation-skipping transfer (GST) tax exemption is $5,000,000 and the generation-skipping transfer tax rate is zero percent. The GST tax rate for transfers made in 2011 or 2012 will be 35%.
• Effective for estates of decedents dying in 2011 and 2012 who leave a surviving spouse, the $5,000,000 estate tax exemption is “portable” (inheritable by the surviving spouse), and the executor of a deceased spouse’s estate can transfer any of the decedent’s unused exemption to the surviving spouse.
This article contains tax and planning techniques that should be reviewed by your personal tax advisor or attorney to determine if they are appropriate for your particular situation and complies with local law. We are unable to render legal or tax advice to individuals.
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