In December of last year President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Chttp://presidentreation Act of 2010 (the “Act”), which encompasses far more than its name would imply. For the past few months our office has been diligently researching the many ways this act might impact our clients, and what we’ve found is that the Act makes significant estate and gift tax changes, many of which may affect your estate planning and asset protection strategies:

* The estate tax exclusion amount was increased to $5 million per person for 2010 through 2012.
* The maximum estate and gift tax rate was reduced from the 55 percent maximum rate under prior law to a maximum estate and gift tax rate of 35 percent for 2011 and 2012.
* A “portability” provision was included, which allows surviving spouses to use any applicable exclusion amount that is not used by the first spouse to pass away.
* The GST exemption amount was increased to $5 million for 2010 through 2012.
* Keep in mind that the Act sunsets at the end of 2012, thus making the changes mentioned above temporary in nature.

Estate Tax

The Act reinstates the estate tax for decedents dying during 2010, but at an applicable exclusion amount of $5 million, and a low maximum tax rate of 35 percent. The Act also eliminates the modified carryover basis rules and replaces them with the stepped-up basis rules that had applied before 2010 (property with a stepped-up basis generally receives a basis equal to the property’s fair market value on the date of the decedent’s death.)

A definite benefit of the Act is that it gives estates of decedents dying during 2010 the option to apply the 2011 estate tax rules based on the new 35 percent top rate and $5 million applicable exclusion amount, and with stepped-up basis; or to apply the 2010 rules with no estate tax and the modified carryover basis rules. If you are dealing with the estate of someone who passed away in 2010 we can help you determine which option may be best for your circumstances.

Gift Tax

The applicable gift tax exclusion amount was increased from $1 million for gifts made in 2010 to $5 million for gifts made in 2011 and 2012, with the maximum gift tax rate remaining at 35 percent. Clients looking to lower their taxable estate should consider taking advantage of this unique opportunity.


The Act provides for “portability” between spouses of the estate tax applicable exclusion amount for estates of decedents dying in 2011 and 2012. This means that if one spouse does not fully utilize the entire $5 million exclusion amount, the unused portion can transfer to the surviving spouse, to be used as part of his or her estate. This sounds like a very generous idea, but in order to be useful both spouses must die before the Act expires at the end of 2012. Although this portability was intended to avoid the need for credit shelter trusts, our office still recommends taking precautions.

GST Exemption (Generation Skipping Transfer)

The Act provides a $5 million GST exemption amount for 2010 (equal to the applicable exclusion amount for estate tax purposes) with a GST tax rate of zero percent for 2010. For transfers made after 2010, the GST tax rate would be equal to the highest estate and gift tax rate in effect for the year (35 percent for 2011 and 2012). The Act also extends certain technical provisions under prior law affecting the GST tax.

The “Expiration Date”

There are a number of opportunities to be taken advantage of in this Act, but the opportunities won’t last forever. The Act sunsets at the end of 2012, at which point in time we may be back to square one. Furthermore, making changes to your plan based on these new rules may require that you revisit your plan again at the end of 2012. We recommend that our clients review and update their estate plan and asset protection strategies every 2 to 5 years anyway, so if that’s one chore you’ve been putting off this recent change provides the perfect incentive to make your appointment.

If you haven’t already called our office to talk about your existing or future plan, you’ll want to do so soon. We’re ready to answer any questions you might have, or help you take advantage of new opportunities.

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