It is official. President Obama signed into law Friday the “Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010.” The law removes (for now) a good deal of the uncertainty that existed with the repeal of the estate tax in 2010 and a return in 2011 to the estate and gift tax exemptions and rates of 2001.
The major gift, estate and generation-skipping tax provisions of the Act are as follows:
- Beginning January 1, 2011, the estate, gift and generation-skipping tax exemption is $5 million per taxpayer ($10 million per couple) and the tax rate is 35% (beginning in 2010).
- The estate tax exemption for a deceased spouse is portable, meaning the surviving spouse can use the unused estate tax exemption of the “last deceased spouse.”
- The lifetime gift tax exemption increases from $1 million to $5 million, meaning the gift tax exemption is unified with the estate tax exemption. This presents many planning opportunities for taxpayers to transfer significantly more wealth during their lifetimes without paying gift tax.
- Two year GRATs are still permitted.
- For decedents dying in 2010, executors have a choice. The default rule is that the estate tax regime applies at a 35% rate and a $5 million estate tax exemption. The executor can opt out of the estate tax regime and opt for the carry-over basis regime. The due date for the estate tax return and/or the return reporting carry-over basis is now nine months following date of the enactment of the Act (September 17, 2011), and not nine months from the date of death.
- The rates and exemptions are temporary and apply only in 2011 and 2012, at which time the law will need to be revisited again.