By Sandra M. Clark, Partner at Manning Fulton & Skinner, P.A. in Raleigh North Carolina
I am sure most practitioners including myself were “certain” Congress would act before Jan. 1, 2010, to modify the sunset provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). As a result of the sunset provisions in EGTRRA, as of Jan. 1, 2010, the United States has no federal estate tax for the first time since 1915. Also there is no federal GST for the first time since 1976. This set of laws is only scheduled to last during 2010. Beginning in 2011, the federal estate, gift and GST tax system will revert to their forms prior to the enactment of EGTRRA. During this system of estate tax repeal, the income tax basis of assets acquired from or passing from a decedent will not be made equal to their fair market value at the date of death. With some monetary exceptions, the decedent’s basis in those assets will carry over to the recipient.
2010 Carryover Basis Rules
EGTRRA provides that for decedents dying in 2010, the assets of a decedent are transferred under a “modified carryover basis” value. There are two separate basis increase provisions that are generally available for property passing from a decedent. First, the executor generally can step up the basis of assets of the executor’s choosing by a total of $1.3 million. This basis step up can be allocated to assets passing to any recipient. Second, for property passing to the decedent’s surviving spouse, an additional $3 million in step up basis is available. Both the general basis increase of $1.3 million and $3 million for spousal property can be applied to property passing to a surviving spouse.
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