Currently, the federal estate tax and the generation skipping tax (GST) have been repealed for 2010.
Congress has indicated that the federal estate tax and GST tax may be reinstated, possibly retroactively, at the 2009 rates sometime in 2010. The applicable exemption in 2009 was $3.5 million and the maximum estate tax rate was 45%.
Under the current 2010 law, there will be only a limited step-up in basis. Generally, the federal estate tax laws have previously allowed the benefciaries of the deceased to receive a step-up (or step-down) in basis to the fair market value of many types of assets at date of death. This eliminated or reduced capital gains taxes when the heirs sold these assets. In 2010, if the estate tax remains repealed, a step-up in basis is limited to $1.3 million for the overall estate, plus $3 million for assets transferred to surviving spouse2. This means many more families that were never affected by federal estate taxes may fnd themselves affected by this new tax regime.
If Congress fails to act in 2010, the federal estate tax on all estates over $1 million returns in 2011, wit tax rates up to 55%. Generation skipping transfers greater than $1 million3 in 2011 will be taxed at a fa rate of 55%.
Congress did NOT repeal the federal gift tax. Currently, annual gifts are limited to $13,000 per benefciary. Beyond that, if any person makes a gift of more than $1 million over his or her lifetime they will use up their lifetime unifed credit exemption equivalent and will be subject to gift tax. The gift tax rate will equal the highest individual federal income tax rate, currently 35% in 2010.
