Under the EGTRRA Tax Legislation adopted in 2001, there is in 2010 currently no estate tax or generations skipping transfer tax imposed on decedents dying this year. However, these taxes return on January 1, 2011 with a rate of 55% (increased from 45% in 2009) and a personal exemption amount of $1 Million (decreased from $3.5 Million in 2009). There is also no step-up in income tax basis of assets in 2010; instead basis of assets carry over to the beneficiary, subject to some exemption amounts for surviving spouses and other heirs generally. However, step-up basis rules return in 2011, along with an increase in the gift tax rate from 35% in 2010 to 55% in 2011, with the lifetime exemption amount returning to $1 Million. 

 

Despite attempts by both House and Senate to reach some compromise which would either make 2009 rates and levels permanent, or establish some other permanent rates and levels, as of the date of this conference no action has been taken. Nor have either the House or Senate set a date on which to address this matter again. 

 

Some Senators have pledged to try to restore the estate tax retroactively in 2010. However, to date nothing has come of these statements, and previous attempts to affect the tax laws retroactively have resulted in years of litigation and corresponding uncertainty. The longer we progress into 2010, the less likely a retroactive fix to the law seems possible. 

 

It is always dangerous to make predictions, especially concerning legislation of such far reaching impact as the Federal Estate Law. However, at this time it would be only prudent to plan for the possibility (likelihood?) that the $1 Million exemption amount will return in six months. At the present time CGA continues to monitor the status of this tax law and will provide updates on our website. In the meantime, it is perhaps more imperative then ever that individuals review their estate planning with a tax advisor and be aware of the potential impact of this law on their own planning. 

 

If you have any questions about anything in this article, please do not hesitate to contact CGA Law Firm’s estate planning group.