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Friday, January 7, 2011

Estate Tax. Is There Is? Or Is There Ain’t?

There Is.  At Least For Now.

Seemingly on Christmas Eve, the President signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (short title: 2010 Tax Relief Act ) which effectively extends the Bush-era tax rates for another two years. The law also provides  new gift, estate, and generation-skipping taxes for this year and next year. Since they are only temporary, Congress will have to deal with the entire situation again in 2012.

Here are the key estate and gift tax provisions of The Act:
  • 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).
  • Heirs will receive a step-up in basis of up to fair market value at the date of death.
  • The estate tax exemption for a deceased spouse is portable.  That means that a 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, which means that the gift tax exemption is unified with the estate tax exemption.
  • Two year GRATs are still permitted.
  • For decedents dying in 2010, executors can apply the 2011 tax rates or choose to use 2010’s carry-over basis approach. 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.
  • The 15% tax on qualified gains and dividends will remain in place.  Those in the 10-15% tax brackets will have a no capital gains tax on gains or dividends.

Now What?

Don’t delay.  Review your estate plan with your attorney and make the changes necessary so that your plan will work today, tomorrow, or next year.  As always, Freya Allen Shoffner and the attorneys at Shoffner & Associates are ready to help.

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