Federal Estate Tax Update

As you may know, Congress took no action before the end of 2009 to prevent the repeal of the federal estate tax. As a result, there is no federal estate tax for individuals dying in 2010. Under current law, the federal estate tax is to be reinstated as of January 1, 2011 with a $1 million federal exemption amount and a maximum tax rate of 55%. It is possible that Congress will take some action in 2010 to reinstate the federal estate tax, and to attempt to make it retroactive to January 1, 2010. However, there is much uncertainty about, if and when this will happen, and whether retroactive application is constitutional.

Summary of current 2010 Estate/Gift Tax Laws:

  • There is no federal estate tax for individuals who die in 2010.

  • New “carry-over basis” rules apply for individuals dying in 2010, which means that the basis of inherited property remains the same as it was for the deceased owner, instead of “stepping-up” to date of death values. The 2010 carry-over basis rules do allow the Personal Representative to allocate up to $1.3 million of “increased basis” to any assets inherited from the deceased owner, and an additional $3 million of “increased basis” to assets inherited by the deceased owner’s surviving spouse as “qualified spousal property”.

  • There is no federal generation-skipping transfer tax for generation-skipping transfers taking place in 2010.

  • The federal gift tax remains in place with a $1 million exemption for lifetime gifts, with a maximum tax rate of 35%. The federal annual gift tax exclusion (the amount you can gift per individual per calendar year without it being considered a taxable gift) remains $13,000 for 2010.

  • The Maine estate tax remains in place with a $1 million exemption amount and a maximum tax rate of 16%.

If you have questions regarding how the repeal of the federal estate tax for 2010 impacts your estate planning documents, please contact Attorney Jennifer I. Richard or Attorney Stephanie N. Strouse.