Alert
03.03.11
On December 17, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which included new estate and gift tax laws applicable in 2011 and 2012. These laws provide opportunities to transfer assets to your desired beneficiaries at a tax cost that is significantly lower than under the tax laws prior to 2010. On February 14, President Obama released his proposed budget for the U. S. government in fiscal year 2012. Here is a brief summary of the new federal estate and gift tax laws in effect for 2011 and 2012, plus a look at how the President’s proposed budget would affect federal estate and gift taxes, if enacted.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010
The Estate Tax
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act”) establishes a $5 million estate tax exemption (the “applicable exclusion amount”) and a 35% maximum federal estate tax rate, applicable from the beginning of 2010 through the end of 2012. Those who inherit property under this regime may apply a step-up in basis for income tax purposes.
However, the estates of decedents who died during 2010 have the option to elect out of the estate tax laws under the Tax Relief Act. In so choosing, the estate would be subject to no federal estate tax, but all inherited property would be subject to modified carryover basis for income tax purposes. Please see the section on “Administration of Estates of 2010 Decedents,” below, for a more detailed discussion.