Temporary Repeal of the Estate Taxes in 2010
No doubt you have read about the surprising failure of Congress to act during 2009 to extend the existing federal estate tax (FET) and generation-skipping transfer tax (GSST) beyond 2009. Due to this failure to act, both the FET and the GSST are temporarily repealed at least during 2010. They are scheduled to automatically revive on January 1, 2011 with a lower FET exemption of only $1M per person and a FET tax rate in excess of 55%.
Most of you have estate planning documents that divide your estate upon death into separate shares in order to minimize the FET. These divisions are made by formulas that use terms defined by the federal tax laws. The absence of a FET and GSST may therefore render unclear some of the formula language used in your documents. We have created an interim trust amendment that clarifies the allocation between the shares for a death in 2010. If you have an estate with a gross value in excess of $1M per person (or $2M per couple) with a trust or will that divides your estate into separate shares, you may want to have the trust amended to meet your intent for allocation during 2010. It is also an opportunity to update your estate planning and/or to make other changes that may need to be made to your documents to take advantage of tax planning opportunities that exist in 2010.
Because of the temporary repeal of these taxes, another important change in the law, which can have effects beyond 2010, is that property received from a decedent's estate who died or dies in 2010 will, for the most part, now receive as the tax basis for purposes of determining gain on the future sale of the property the decedent's tax basis before the date of death. Previously (and again starting next year for decedent's dying after 2010), all the assets receive a new adjusted basis equal to the fair market value of the property on the date of the decedent's death.
This 2010 FET law is quite complex, and each estate has a right to increase the decedent's basis by up to $1.3 million, which increase can help reduce or eliminate future capital gains taxes payable by the estate or beneficiary. Additionally, where the decedent is survived by a spouse, an additional increase of up to $3 million may be given to the property received by such surviving spouse, further reducing capital gains taxes payable by such spouse. Wills and revocable trusts should include special provisions regarding such allocations of basis adjustments.
If you believe that your estate plan documents may need to be reviewed for the current FET and GSST tax dilemma, we will gladly schedule a time to meet with you and discuss your estate planning documents. In some cases, no changes will be required. In others, we may recommend changes. Of course, we cannot know in advance whether your documents will require changes to best take advantage of the current state of the estate tax law until we have a chance to review your documents with you.
Even if your documents do require changes, we will attempt to keep them as minimal as possible, in keeping with the limited duration of their usefulness. Nonetheless, we strongly believe that it is important that your estate planning documents produce the result you want.
If you have any questions on estate planning or gifting, please contact us. We are experienced in handling all types of gifting whether outright or by way of trusts.
Shapiro Buchman Provine LLP continues to provide its clients, professional advisors and friends with up-to-date reports on recent developments in business, real estate, employment, estate planning and taxation.
Authored by:
Thomas G. Blomberg, Jr. - tblomberg@bpbsllp.com
Robert A. Buchman, Esq. - rbuchman@bpbsllp.com
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