Estate, Gift, GST Tax Update

The Estate, Gift, and Generation Skipping Transfer (GST) Taxes have been dramatically changing in recent years.  The following chart briefly summarizes these changes (as the law currently stands today).  In addition to the chart, we have included a summary of the changes scheduled for 2010 and beyond. 

It should be noted that we expect Congress to return in early 2010 and enact additional changes.  When this occurs, we will update this webpage to provide you with the most up-to-date information on Estate, Gift, and GST Taxes.    

Estate/Gift/GST Tax Summary Chart

(As Law Exists on 1/1/10)

Summary of Estate, Gift, and GST Tax changes

Repeal of the Estate and GST Taxes in 2010 – Although Congress will likely return in 2010 and make changes, the following explains how the Estate/Gift/GST Tax statutes are currently written.  As we begin the new year, laws are in place which temporarily repeal the Estate and GST Taxes for the 2010 calendar year.  But the repeal of the Estate and GST Taxes are not entirely a boon to decedent’s heirs.  Generally, heirs inherit property with a stepped-up basis valued on the date of death (or 6 months thereafter).  However, in 2010, for larger estates, not only is the Estate Tax repealed, but the stepped-up basis also goes away.  For the 2010 calendar year, the first $1.3 million in assets inherited by heirs gets a stepped-up basis, but for the portion of the estate exceeding $1.3 million, the heir’s basis in the property is the decedent’s carry-over basis (unless the decedent’s basis exceeds the fair market value of the property at death).  However, an exception was created for assets passing to a surviving spouse.  Assets passing to a surviving spouse qualify for the $1.3 million stepped-up basis plus an addition $3 million in stepped-up basis – for a possible $4.3 million in assets that can be inherited by a surviving spouse with a stepped-up basis.  For assets inherited by heirs without a stepped-up basis, although Estate Taxes are avoided, income taxes will be larger when the decedent’s heirs sell the property (as a result of inheriting the decedent’s lower basis). 

It should be noted that the Gift Tax is not repealed in 2010.  However, the Gift Tax rate is reduced from 45% to 35%.  The $1 million lifetime Gift Tax exclusion and the annual $13,000/year (indexed to inflation) Gift Tax exclusion remain in place in 2010 and thereafter.   

Estate and GST Taxes Return in 2011 – The 2010 Estate/GST Tax repeal is short lived.  As the law currently stands, beginning in 2011 (and tax years thereafter), the Estate and GST Taxes spring back to life (at rates and exemptions levels which were in place in 2002).  The Unified Estate/Gift/GST Tax rates increase to 55% and the Unified Estate/GST Tax credit will be set at $1 million.  Additionally, heirs will inherit all property with a stepped-up basis (i.e., the fair market value of the property at the date of death or 6 months thereafter).  

Also in 2011, the Gift Tax remains in place, but the rate increases from 35% to 55%.  The $1 million lifetime Gift Tax exclusion and the annual $13,000/year (indexed to inflation) Gift Tax exclusion also remain in place in the 2011 calendar year and thereafter.

At Broadway Bank, we encourage our clients to stay abreast of anticipated statutory changes to the Estate, Gift, and GST Taxes.  These changes can significantly change your estate plan and the possible taxes levied on your assets.  Therefore, we encourage you to discuss the specifics of your estate plan with your attorney, CPA, or other tax professional.

Resoures:

ESTATE PLANNING IN UNCERTAIN TIMES:
THE IMPACT OF THE REPEAL OF THE ESTATE TAX
AND WHAT YOU NEED TO CONSIDER
January 1, 2010

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