The Estate Tax No Longer Exists But Will Return
The Estate Tax No Longer Exists But Will Return
Through Congressional inaction at the end of last year, the repeal of the federal estate tax that was enacted by the Economic Growth and Tax Relief Act (EGTRRA) of 2001 took place January 1. For persons who have died on or after January 1, or who die during the remainder of 2010, there will be no federal estate tax unless Congress acts. It is widely assumed Congress eventually will enact a new version of the federal estate tax along the lines previously considered, that is, with a large exemption of perhaps $3.5 million per individual, or $7 million per married couple.
Meanwhile things are very uncertain. Under EGTRRA itself, the repeal of the estate tax is temporary, with the tax being reinstated in 2011 with an exemption of only $1 million. Meanwhile, at least for the time being, we have this state of affairs:
1. No federal estate tax, and no federal generation skipping tax.
2. Federal gift tax on taxable gifts totaling more than $1 million at 35% (rather than 45% as during 2009). Annual exclusion gifts of up to $13,000 per individual are still not subject to gift tax.
3. No step up in basis for inherited assets. That is, instead of a “fresh start” basis equal to the date of death value, those who inherit property will take the same basis as the property had in the hands of the decedent. This “carryover basis” rule is operative for 2010 only.
4. The federal estate tax is reinstated January 1, 2011, with an exempt amount of $1 million only and a maximum rate of 55% (versus 45% in 2009). The GST is also reinstated with a $1 million exemption and 55% rate.
What should you do? Probably nothing for now, but review your will and other estate planning documents to make sure they were correct to accomplish what you want if your estate is more than $1 million. Maine’s estate tax was not in step with the federal estate tax, and we often drafted special provisions for the Maine estate tax in the past, which will still be beneficial for those who die in 2010 or in the future. Please contact Jill Checkoway or Bryan Dench with any questions or concerns about your planning.