2010 Tax Relief Act: Estates

The following summarizes key points for Estate Planning in the 2010 Tax Relief Act:

Estate Tax Exemption

Within the 2001 Bush era tax cuts legislation, there was no federal estate tax or GST tax for 2010 but there would have been a capital gains tax on the assets of the estate, if sold, based on the original cost basis of the assets.   If the new law had not been enacted, Bush’s tax cut legislation would have terminated and beginning in 2011 estates of $1 Million dollars or more would have been taxed at the marginal rate of 55% and the GST (generation skipping transfer) tax of 55% would have applied to gifts exceeding $1.36 Million dollars.

The Tax Relief Act of 2010 (“Act”) extended and modified the Bush era tax cuts by exempting $5 Million dollars ($10 Million for couples) of estate assets from estate and GST taxes and reducing the marginal rate of the estate and GST tax to 35% for two years, 2011 and 2012. There is no GST for 2010 for estates $5 Million dollars or less.  The new Act also allows any unused portion of the exemption to be passed to a surviving spouse.  The amount of the exemption for 2012 will be increased by applicable inflation.

The New Act re-instated the old stepped basis rules for 2010 estates by offering the estates a choice of either paying not estate taxes and paying capital gains based on the original cost basis of the assets or paying %35 on the value of assets in excess of $5 Million dollars and receiving a stepped up basis.  The

Under the new legislation Estate and Gift taxes are treated the same: the exemption applies to both gifts and bequests and a single tax rate applies.  Up to $13,000 can be given as a gift in 2010.

Important to note that the changes listed above are only good for two years or through 2012.