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; Two Years of Estate and Gift Tax Nirvana!
Anthony J. Enea, Esq.*
On December 17, 2010, President Obama signed
into law AThe Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010" (A2010 Act@),
(try saying that 10 times fast), which contains sweeping revisions to federal
estate and gift tax laws. Although it
will take several months for all of the provisions of the 2010 Act to be
thoroughly digested, one thing appears to be certain, the 2010 Act presents an
unprecedented two-year window for the affluent to engage in significant estate
and gift tax planning.  p>
In summary, the following are the relevant
federal estate and gift tax rules contained in the 2010 Act:
decedents dying in 2010, the executor of the estate may choose between (1) no
federal estate tax pursuant to the prior repeal of the estate tax with the Amodified carryover basis rules,@ which limits the step-up in basis of the
decedent=s property for capital gains tax purposes to
$1.3 million for heirs and $3 million for spouses, or (2) the new $5 million
estate tax credit, with an unlimited step-up in the cost basis for capital
gains tax purposes on the property passing from the decedent=s estate.
The maximum federal estate tax rate is 35% if the new $5 million credit
is chosen. The time to file the federal estate tax return for decedent=s dying in 2010 has been extended to nine (9)
months after the date of enactment of the 2010 Act, being, September 19, 2011. p>
the year 2010, the lifetime gift tax credit remains at $1 million dollars with
a maximum tax rate of 35%. Thus, no
change was made; p>
the estates of decedents dying in 2011 and 2012, the federal estate tax credit
is increased to $5 million per person and $10 million for a married
couple. The maximum tax rate is reduced
to 35%. For the year 2012, the credit
amount will be indexed for inflation.
The estate tax credit under the new rules is now portable. Thus, the executor of the estate of a
decedent can transfer the unused portion of the decedent=s estate tax exemption to the surviving
on January 1, 2011 the gift tax credit is now re-unified with the estate tax
credit with a $5 million gift tax and generation skipping tax credit per person
being available, and not $1 million as it was under the law in effect for
2010. The 2001 Tax Act had Ade-coupled@ the estate and gift taxes. Thus, in 2011 and 2012 a single person can
make a total of $5 million worth of taxable gifts without incurring a gift tax,
and a married couple can gift a total of $10 million without incurring a gift
tax. The maximum tax rate on gifts in
excess of the credit amount remains at 35%. p>
For example, a married couple that has
previously utilized each of their $1 million gift tax credits ($2 million
total), nowhas the ability to give away an additional $4
million total per person ($8 million total per couple) in 2011 and 2012. In reality, if this married couple is gifting
assets that can be discounted for lack of marketability and a minority interest
discount, the value of the assets gifted can be significantly greater than the
$8 million. I think it is safe to assume
that a lot of gifting will occur in the next two years.
there is uncertainty as to whether the provisions of the 2010 Act will be extended
beyond 2012, the new rules effectively shield the vast majority of Americans
from any federal estate taxes during the next two years. Those financially concerned with estate
taxes, i.e. the affluent and small business owners, now have the opportunity to
take significant steps to reduce their exposure to the potential for estate
taxes in a material way. The use of
complex trusts, such as Grantor Retained Annuity Trusts (GRATS), Intentionally
Defective Grantor Trusts (IDGTS), Qualified Personal Residence Trusts (QPRTS),
as well as Family Limited Partnership and Limited Liability Companies will be
of great importance in taking advantage of the unprecedented opportunity that
has presented itself.
It should be remembered that the New York
Estate Tax Credit remains at $1 million per person. As with all things in life, advance planning
is of critical importance.
Tax Relief, Unemployment Insurance, Reauthorization and Job Creation Act of
2010 (Pub L 111-312, H. R. 4853 (A2010
Act '303 and
Anthony J. Enea, Esq. is the
managing member of the firm of Enea, Scanlan & Sirignano, LLP of White
Plains, New York. His office is centrally
located in White Plains and he has an office in Somers, New York.
Mr. Enea is the Chair of the
Elder Law Section of the New
York State Bar Association.
Mr. Enea is a Past President
and a Founding Member of the
New York Chapter of the National Academy of Elder Law Attorneys (NAELA). He is also a member of the Council of
Advanced Practitioners of NAELA.
Mr. Enea focuses his practice
on Elder Law, Wills Trusts
and Estates, Business Succession Planning, Partnership and Corporate Matters.
He can be reached at (914) 948-1500.