Estate Tax Relief

The recently enacted the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) is a sweeping tax package that includes, among other items, an extension of the Bush-era income tax cuts, federal estate tax relief, revisions to the alternative minimum tax and reduction in employee paid payroll tax. Below is a brief description of the highlights effecting federal estate taxes:

Under the new law, the federal applicable exclusion amount is significantly increased from Three and One Half Million Dollars ($3,500,000) in 2009 to Five Million Dollars ($5,000,000) indexed for inflation beginning in 2011.

The maximum federal estate tax rate was decreased from forty five percent (45%) to thirty five percent (35%).

The lifetime gift tax exemption is reunified once again with federal applicable exclusion increasing the amount which can be gifted during your lifetime from One Million Dollars ($1,000,000) in 2009 to Five Million Dollars ($5,000,000) starting in 2011.

For the first time, the 2010 Tax Relief Act allows a surviving spouse to take advantage of a deceased spouse’s unused exclusion amount. The surviving spouse must make an election on a federal estate tax return (Form 706) at the death of his or her spouse. This “portability provision” provides an opportunity to dramatically increase the amount that can pass free of federal estate tax for married couples who have not done estate tax planning prior to the death of the first spouse.

The changes enacted under the 2010 Tax Relief Act are in effect until the end of 2012. It is important to review your estate plan in light of these changes and to be aware that the law will likely change again by the end of 2012.