subject: Planning Opportunities Under the 2010 Tax Act [print this page] Planning Opportunities Under the 2010 Tax Act
In the last issue of the Tax Planning Newsletter, we took a first look at the changes in the federal estate, gift and generation-skipping taxes as found in the 2010 Tax Act (formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010).
The 2010 Tax Act extends to December 31, 2012, the income, estate, gift and generation-skipping tax provisions enacted during the administration of President George W. Bush ("EGTRRA"). For the two-year period beginning January 1, 2011, it reinstates the unified federal estate, gift and GST exemption, sets the exemption at $5 million and sets the tax rate on amounts over the exemption at 35%. It also includes, for those 2 years only, a new "portability" provision that allows the executor of the first spouse to die to transfer any unused gift and estate tax exemption to the surviving spouse. It also changes the estate tax law and provides an option for estates of those who died in 2010. And it presents more uncertainty, as this tax "relief" is only for two years and has built-in uncertainties. Plus, just like under EGTRRA, if Congress does not act before the sunset date, the EGTRRA provisions and the 2010 Tax Act provisions will disappear and the tax laws will revert to how they read in 2000.
These changes, and the uncertainty that comes with them, present some unique planning opportunities and challenges for estate planning professionals. In this issue, we will examine some of them.
Opting Out of the Estate Tax for Those Who Died in 2010
The 2010 Tax Act made a retroactive reinstatement of the estate tax, setting the exemption for 2010 at $5,000,000 (without portability), and repealed the carryover basis provisions that were unique to 2010. However, the executor for a decedent who died in 2010 may elect to opt out of the new law and therefore have the modified basis rules (unlimited step-down for loss assets and a limited step-up of $1.3 million ($60,000 for non-resident non-citizens), plus $3 million for assets passing to a surviving spouse) and no estate tax apply.
The executor of a 2010 decedent's estate has until September 19, 2011, to make the election; file estate tax, GSTT and basis allocation returns; pay estate tax; and make disclaimers.
Planning Tip: In almost all cases for 2010 estates that are less than $5 million (the applicable exclusion amount), the election to opt out should not be made. These estates almost always come out better with the $5 million exemption and fair market value step-up in basis. For larger estates, an evaluation will need to be made before assuming the carryover basis would be better.
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