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Publications December 2010
On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010 (the Act). Among the key points of the Act are several provisions addressing the expiring estate, gift and generation-skipping (GST) transfer tax provisions of current law.
Unification of the Transfer Taxes
In general, the Act sets the estate, gift and GST exemption at $5 million (indexed for inflation beginning in 2012) and sets the maximum tax rate at 35%. The exemption applies in 2010, except with respect to the gift tax, which remains at $1 million until January 1, 2011.
Estate Tax Provisions
The Act made several changes to the prior estate tax regime, which provided for no estate tax in 2010, but reverted to a $1 million exemption and a maximum tax rate of 55% for estates of decedents dying beginning on January 1, 2011.
Gift Tax Provisions
As noted above, beginning in 2011, the gift tax exemption is unified with the estate and GST tax at $5 million. The unification of the gift and estate tax regimes provides powerful new opportunities for transfer planning for wealthy individuals.
GST Tax Provisions
The GST Applicable Rate in 2010 is zero, which results in no GST tax on transfers in 2010. Beginning in 2011, there is a $5 million exemption (indexed for inflation beginning in 2012) and a maximum tax rate of 35%. As with the estate tax, the time to file a GST return is extended to no earlier than nine months after the date of enactment of the Act.
The zero tax in 2010 presents one-time planning opportunities for currently non-exempt generation-skipping trusts and for gifts to grandchildren or trusts for their benefit. Such opportunities will expire after December 31, 2010.
Sunset Provisions
The provisions of the Act are only a temporary repair, expiring on December 31, 2012. The Act provides no guidance for planning beyond 2012. If Congress does not address these issues again before December 31, 2012, we will find ourselves in the same uncharted waters as we did only a few days ago.
For more information about the new Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010, or if you have questions about how this new law may effect your current estate plan, please contact us.
Robert W. Sheehan
Partner
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