Tax Alert: Temporary Repeal of Federal Estate and Generation-Skipping Tax Effective in 2010 Causes Confusion for Estate Planning
1/05/2010
Due to Congress’ failure to address the repeal of the Federal estate tax in 2010, on January 1, 2010 the Federal estate and generation-skipping taxes were repealed for one year until January 1, 2011. As noted below, this will result in much uncertainty in 2010, but may also present some planning opportunities.
- On January 1, 2010, the Federal estate tax and generation-skipping tax are repealed for one year, or until earlier Congressional action is taken.
- Federal gift tax is not repealed; it remains in effect at the rate of 35 percent on taxable gifts in excess of the $1,000,000 exemption. (The 2009 rate for gifts in excess of the exemption is 45 percent.)
- Congress is likely to reinstate both the estate and generation-skipping taxes at some point during 2010. The reinstatement may be retroactive to January 1, 2010 despite potential court challenges that retroactivity is unconstitutional.
- While there is no estate tax, estates of decedents dying after January 1, 2010 are subject to a complicated carry-over basis regime.
- Current estate plans should be reviewed, particularly those for married persons where the division of assets among beneficiaries is driven by a formula based on prior law estate or generation-skipping tax exemptions.
Further complications may exist for married persons who reside in states with an independent state death tax (i.e. New York, New Jersey, and Connecticut).
- For those willing to take risks, planning opportunities may exist in the form of taxable gifts made in early 2010, especially gifts to grandchildren that may be free of generation-skipping tax.
- If Congress again fails to act in 2010, the estate and generation-skipping taxes will return on January 1, 2011 with a $1,000,000 exemption for each and a maximum tax rate of 55 percent.
For more information on this and related issues, please contact Andrew T. Wolfe, CPA, JD, LLM, J.H. Cohn tax partner and director of estate planning, or your J.H. Cohn professional at 877-704-3500.
Andrew T. Wolfe, CPA, JD, LLM, is a partner in J.H. Cohn’s Trust and Estate Practice and director of its Estate Planning Group. He specializes in gift and estate taxation, estate planning, charitable gift planning, asset protection planning, income taxation of trusts and estates, and succession planning for family-owned businesses. He may be reached by email or at 877-704-3500.
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