Background. Legislation enacted in 2001 gradually increased the estate tax and generation skipping transfer (“GST”) exemptions and decreased tax rates (at all times, the lifetime gift tax exemption remained constant at $1 million). In 2009, the estate and GST exemptions reached a peak of $3.5 million and tax rates reached a low of 45%. In 2010, the 2001 legislation calls for a one-year repeal of the estate and GST taxes, a 35% gift tax rate (at least initially) and no “step-up” in basis (all discussed below). However, the 2001 legislation is scheduled to “sunset” on December 31, 2010, causing the pre 2001 law to become law again. Most estate planning practitioners believed Congress would act to extend the 2001 legislation. The House of Representatives did pass legislation to make permanent the 2009 exemption and tax rate levels; however, the Senate, being focused on health care reform, could not reach an agreement.
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