Estate Planning and the 2010 Tax Act


On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”). The enactment of this legislation resulted in several important changes for federal estate and gift tax law. While there was no federal estate tax for 2010, in 2011 the federal estate tax was scheduled to return with a $1 million exemption and a maximum marginal rate of 55%. The Act reduces the 2011 and 2012 maximum federal estate tax rate to 35%, and increases the exemption to $5 million per person. In addition, the pre-2010 rules concerning the step up in basis for assets at death are reinstated, and the Act provides for estate tax exemption “portability”, which means that a deceased spouse’s unused estate tax exemption can be utilized at the death of the surviving spouse.

Notwithstanding the favorable estate tax rates and estate tax exemption in 2011 and 2012, after 2012 the federal estate tax increases to a maximum marginal rate of 55% and the unified credit reduces to $1 million per person, with no portability.

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