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A Better Partnership


Jan 2010
January 07, 2010

Estate & Gift Tax Alert

Due to Congress's failure to act before the end of 2009, significant changes to the wealth transfer tax system became effective January 1, 2010.

What's different:

  • The estate tax does not apply to individuals who die in 2010.
  • The generation skipping transfer tax is eliminated for the same period.
  • The income tax basis of assets owned at death will not be adjusted to date of death values; instead, there is an election to increase basis by up to $1.3 million for all taxpayers and by an additional $3 million for certain transfers to spouses.
  • The highest marginal tax rate for gifts in excess of $1 million is the highest individual income tax rate (35%).

What's the same:

The gift tax rules (i.e., $13,000 annual gift tax free amount and $1 million lifetime gift tax exemption).

Although this regime has taken effect for 2010, many expect Congress will restore the estate and generation skipping tax, and that it may seek to do so retroactive to January 1, 2010. Congress may also modify the system that is to take effect on January 1, 2011. However, nothing is certain. And, if Congress does not act before the end of 2010, the estate, generation skipping, gift, and income tax system starting in 2011 reverts to:

  • Estate and generation skipping transfer tax exemption of $1 million.
  • Estate tax maximum rate of 55%.
  • Top gift tax rate of 55%.
  • Income tax basis adjustment equal to value on the date of death.

What clients should do now: The WNJ Trusts and Estates Group anticipated the estate tax and generation skipping transfer tax might not apply to client’s plans and proactively changed estate planning documents beginning in 2001 to address this possibility. Nevertheless, even if we created or updated your estate plan since 2001, review of your planning is warranted and changes may be appropriate. We suggest you contact your WNJ attorney if:

  • You have questions.
  • You have a net worth in excess of $1 million (including life insurance death benefit proceeds and retirement plans).
  • Your will or trust refers to the marital deduction, federal estate tax, unified credit, estate tax exclusion amount, and/or the generation skipping transfer tax, or if you are unsure.
  • We did not prepare or update your estate plan since 2001.
  • You wish to discuss possible wealth transfer opportunities available during this period of repeal.

The current Washington partisanship and legislative uncertainty leaves many questions unanswered, but we will continue to closely follow legislative efforts.

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