Estate Taxes…What a Mess

March 08, 2010

CURRENT LAW: As the law now stands, there is no estate tax on individuals dying in 2010, the generation skipping transfer (GST) tax has been repealed for 2010 and the basis rules have changed for 2010, subjecting heirs to the possibility of capital gains tax on the appreciation in the value of inherited assets.  The gift tax exemption remains at $1 million, however, the rate of tax on gifts in excess of the exemption amount has decreased to 35% (in 2009 the rate was 45%).

It is unknown whether a legislative “fix” will be enacted before the end of 2010.  On December 3, 2009, the House of Representatives passed the Permanent Estate Tax Relief for Families, Farmers and Small Businesses Bill of 2009 (H.R. 4154), which would have permanently extended the $3.5 million exemption ($7 million for a married couple) with a flat estate tax rate of 45%.  The bill failed to win support in the Senate.  Technically, Congress has a nine-month window to change the estate tax regime or extend the 2009 estate tax regime retroactively to January 1, 2010 before the estates of decedents dying on January 1, 2010 would be required to file an estate tax return.

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