On Friday, December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (“TRA 2010”) into law, extending the Bush-era tax cuts and ending much of the uncertainty surrounding estate, gift, GST and income taxes for 2010 and through the next two years. Following is a brief summary of some major provisions of TRA 2010.
Estate, Gift and GST Tax Relief:
- Estate and GST tax exemption increased to $5M beginning in 2010
- Gift tax exemption increased to $5M beginning in 2011 (gift tax exemption remains at $1M for 2010)
- Top estate and gift tax rate of 35% (beginning in 2010)
- GST tax rate is ZERO for 2010, 35% beginning in 2011
- Reunification of the estate, gift and generation skipping transfer (GST) taxes in 2011
- Estate tax ($5M exemption, 35% top rate, date of death basis step-up) is the default for estates of decedents dying in 2010
- In lieu of an estate tax, Executors of estates of decedents dying in 2010 can elect no estate tax and carryover basis.
- No minimum term for GRATs
- NEW! Exemption “portability” between spouses
Tax Cuts Extended for Two Years:
- Capital gain and qualified dividend rates remain at 15%
- Maximum individual income tax rate remains at 35%
- Standard deduction increased for married couples
- Itemized deductions will not be phased out for higher income taxpayers
- Alternative minimum tax (AMT) patch (without the patch, an estimated 20 million additional taxpayers would have owed AMT for 2010)
- Charitable IRA rollover
In addition to estate, gift, GST and income tax relief, TRA 2010 also includes incentives for businesses to invest in machinery and equipment, a temporary payroll tax reduction of 2% for 2011, extension of unemployment benefits for an additional 13 months, and reinstatement and extension of a myriad of other expired business and individual tax breaks.
Many provisions of TRA 2010 could have a significant impact on the effectiveness of your current estate plan and could open up additional planning opportunities in 2011. We welcome the opportunity to review your current plan with you and brainstorm how you can take advantage of the new tax climate to further your business, philanthropic and personal goals. If you would like to set up a plan review or have questions about TRA 2010, feel free to call us.
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