New Estate and Gift Tax Law a Christmas Gift
As part of the new tax law, Congress made a number of changes to the estate, gift and generation-skipping provisions, including a new $5 million exemption that may be used in full against gift taxes during your lifetime, "portability"
of the estate tax exemption to a surviving spouse if not fully used by the first spouse to die and, for the first time, an exemption that will be indexed for inflation. As enacted, the new law is only effective for two years,
so you might want to consider gift planning now. Here is a quick summary of the new law:
Gifts: Beginning January 1, 2011, individuals can give up to $5 million free of gift tax, or $10 million per couple with a "split gift", reduced by any
portion of the exemption used in prior years. Gifts over $5 million will be subject to a 35% tax rate. Note that many states which impose a state estate tax do not impose a state gift tax,
so that gift-giving may save significant state estate tax.
Estates: Beginning January 1, 2010, the estate tax is reinstated with a 35% rate, a $5 million exemption and stepped-up basis for all assets included in the estate
for estate tax purposes. However, for decedents dying in 2010 and before the date of enactment, the estate can elect instead 2010 law -- no estate tax and the carryover basis rules, with an allocation
of $1.3 million of basis step-up and an additional $3 million for assets passing to a spouse.
Portability: For decedents dying after January 1, 2011, if an estate tax return is filed for a decedent and an election is made, the surviving spouse can use the unused
estate tax exemption amount of the decedent spouse. While this provision will be useful if the two-year effective period is extended, right now, both spouses would have to die within the two year period for
the this provision to apply. Also, note that any unused GST exemption of a predeceased spouse is not portable to the surviving spouse.
GST Taxes: The GST tax is reinstated effective January 1, 2010, with a $5 million exemption, but the tax rate is 0% for 2010 transfers. The rate will increase
to 35% effective January 1, 2011. This creates planning opportunities for the remainder of 2010 and for the next two years. If you are interested in GST planning, please consult your estate tax
advisor before the end of the year.