Planning Notes - January 27, 2011 - The Tax Relief Act of 2010: An Overview of Estate, Gift and Generation-Skipping Transfer Tax Provisions

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Many articles have appeared recently in the press discussing the implications of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “2010 Act”). Most have focused on the extension of the Bush-era income tax cuts. This summary focuses on the estate, gift and generation-skipping transfer tax changes in the 2010 Act and associated planning opportunities.

The federal estate tax exemption amount for the estates of individuals dying in 2011 and 2012 is set at $5 million as opposed to the $3.5 million exemption in 2009 or the $1 million exemption that would have applied in 2011 absent Congressional action. Additionally, the maximum estate tax rate for those estates is 35 percent tax as opposed to the 45 percent rate that applied in 2009 or the 55 percent rate that would have applied in 2011, absent Congressional action. The estate’s assets generally take a basis equal to their fair market value on the date of the individual’s death. On January 1, 2013, without further Congressional action, the exemption amount will revert back to $1 million, and the estate tax rate will increase to 55 percent.

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