The 2010 Tax Relief Act extended favorable tax cuts for the next two years-postponing the issue to 2013. Clients should act now to lock in these tax benefits. The act, which, among other things, grants a two year extension of the estate tax--subjecting estates worth more than $5 million to tax at a rate of 35%.
Summary of changes:
The 2010 Tax Relief Act has made the following changes to the tax law:
Estate Tax:
- Exemption: $5 million.
- Top Tax Rate: 35%
Special Option for People Who Die in 2010:
The legislation is retroactive. 2010 decedents are subject to estate taxes and get the benefit of a $5 million exemption. However, executors of the estates of 2010 decedents get the option of electing back into the estate tax repeal. In other words, executors may choose: {1) application of the new law; or {2) no estate tax but application of the modified carried over basis regime (carryover basis with $1.3 million and $3 million basis adjustments).
Portability:
Previously, married couples who wanted to take full advantage of each spouse's estate tax exemption had to do estate planning which included a bypass trust. Beginning in 2011, the executor of a deceased spouse's estate may make an irrevocable election in the timely filed estate tax return to roll over any unused exemption to the surviving spouse without the use of a bypass trust.
Generation-Skipping Transfer Tax:
- Exemption: $5 million
- Tax Rate for 2010: 0%
- Tax Rate for 2011-2012: 35%
Gift Tax:
- Exemption in 2010: $1 million
- Exemption in 2011-2012: $5 million
- Tax Rate for 2010-2012: 35%
Why this is important:
The bottom line: uncertainty continues to surround the estate tax. With every new tax law comes challenges and opportunities. The 2010 Tax Act has plenty of both.
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