Tax Impact

Tax Law for Deaths in 2011 and 2012  

Section 301 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“Tax Act of 2010) changed again the gift and GST tax laws, and the federal and state estate tax liabilities by increasing the applicable exclusion amount, reducing the taxable rates, and providing an option regarding the estate tax for year 2010. 

Any Lessons From 2010?

This Act repeals the provisions of EGTRRA which abolished estate and generation-transfer skipping taxes for decedents dying in 2010 (Subtitle A of Title V of EGTRRA) and which replaced the unlimited basis increase for assets owned by decedent with a more limited basis adjustment (Subtitle E of Title V of EGTRRA). 

Federal estate tax applies only to assets exceeding a certain threshold based on the size of an estate that the unified credit protects. The unified credit 
equals the “applicable credit amount,” which is defined as the amount of tentative tax determined on the amount of the “applicable exclusion amount” set forth. For non-U.S. residents, the threshold is $60,000. 
For U.S. citizens and U.S. residents, under Tax Act of 2010, the threshold varied because the applicable amount was set as follows: 2009 $3.5 million with a maximum tax rate of $45% 2010.
Estate tax is repealed for one year, but replaced by the elimination of “stepped-up” basis 2011 $1 million with a maximum tax rate of 55%
5% surtax on certain transfers over $10 million and it also resurrected the state death tax credit.
  Tax Law for Deaths in 2011 and 2012  
The 2010 Tax Act will sunset in 2013 to restore the federal estate, gift, and GST tax laws to their pre-EGTRRA provisions.  

b.) Under 2010 Tax Act. The exemption amount is increased to $5 million with a maximum rate of 35%. For gross estate above $5 million, the IRS Form 706 usually is to be filed within 9 months from the date of death. However, the filing deadline is September 17, 2011 for estates of decedents dying after December 31, 2009, and before December 17, 2010. 

The stepped-up basis rates are reinstated unless for year 2010 the executor elects to have the modified carry-over basis rules apply as provided under EGTRRA. If elected, the executor will file an information return (IRS Form 8939) with decedent’s final return. Please note that this election is irrevocable without IRS consent. This election has no effect on the applicability of GST tax.