Current Developments in Estate Planning – 2010 Tax Act

2010 Estate Tax Election

Although EGTRRA provided for no federal estate tax for decedents dying in 2010, Congress’ passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 modified the 2010 repeal.  Rather than having no estate tax, estates of decedents dying in 2010 are now generally subject to estate tax.  Estates must elect out of the estate tax by affirmatively filing the election with the IRS.  The deadline for filing or an estate tax return for 2010 decedents has been extended to the later of:  September 19, 2011, and nine (9) months from the decedent’s date of death.  The deadline for opting out currently remains April 15, 2011 with a six (6) month extension.

While the upside of electing into the estate tax is the heirs’ stepped-up basis in the inherited assets, it is vital that estates evaluate this decision and affirmatively elect out of the 2010 estate tax before the deadline, or an estate tax is imposed by default, and estates not electing out could be subject to audit and assessment in the future.

EGTRRA Extension, Rates, Exclusions, Etc.

The 2010 Act extends EGTRRA (with some modifications) through December 31, 2013, however the 2010 Act provides a $5 million exclusion amount and a top rate of 35%.  These rates will apply for estate taxes imposed on deaths between 2010 and 2013.

In general, the changes imposed by EGTRRA will continue, including the state death tax credit.  This means that California’s (and many other states’) “sponge” tax will again take effect, and these states will again receive estate tax revenue (with no estate tax cost).

The gift and estate taxes are again unified, the $5 million applicable exclusion amount applying to gifts as well.

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