2010 Estate Tax

[BHoffman]

So, was the final decision $5m exempt for the estates of those who passed away in 2010?

If anyone can steer me to the info, I'd appreciate it

Thanks

[Jesse]

From The Tax Book update

Summary of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 continued

III. Temporary Estate Tax Relief
Temporary estate, gift and generation skipping transfer tax relief. The EGTRRA
phased out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010 and lowered the gift tax rate to 35% and increased the gift tax exemption
to $1 million for 2010. The new law sets the exemption at $5 million per person and $10
million per couple and a top tax rate of 35% for the estate, gift, and generation skipping
transfer taxes for two years, through 2012. The exemption amount is indexed beginning
in 2012. The new law is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The new law sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.

Reunification. Prior to the EGTRRA, the estate and gift taxes were unified, creating a
single graduated rate schedule for both. That single lifetime exemption could be used
for gifts and/or bequests. The EGTRRA decoupled these systems. The new law reunifies
the estate and gift taxes. The new law is effective for gifts made after December 31, 2010.

[BHoffman]

Thanks Jesse - I had to call TTB to find out if I ordered or not. Seems I ordered the CD version and it will ship in the next week or so. I usually like books, but putting those updated pages in was a real pain, and figured there might be LOTS of updates this year.

[Nashville]

Died in 2010

Actually the rules for 2010 called for zero estate tax, but also called for a limit on how much appreciation could be claimed by the beneficiaries as "stepped-up" basis.

The reporting for this limit does not impart to Form 706, but instead as an attachment to the decedent's final tax return. Last I knew of this, the IRS had not yet designed the form or given it a number, but the requirement exists nonetheless. It is the executor's responsibility to do this, but a privelege (see below) as well.

The requirement exists in situations where the dollar limit stepped-up appreciation is exceeded, and we anticipate the form will accommodate a listing of allocation of the stepped-up amount. It is my understanding that the executor has broad and liberal license to allocate the stepped-up amount to assets of his own choosing. This takes on importance as such an allocation would be more helpful when added to depreciable assets or salable property as opposed to property not anticipated to be sold.

The requirement would not exist if the dollar threshhold is not exceeded, however, it may be a good idea to file the form showing allocations of stepped-up basis even if all of the appreciation is allowed. Again, remember that estate values alone may not launch excess appreciation -- for example, a $50million estate whose holdings are 100% tied up in cash or CDs would not contain any step-up.

I speak only from attending a recent seminar -- I'm not really that much of an authority.

[Bees Knees]

To be clear, the repeal of the estate tax for 2010 was repealed. Thus, the automatic default is a $5 million estate tax exemption for 2010 with step up of basis to FMV. No election to step up basis is required by the executor. Thus, for anyone with an estate under $5 million, there is no estate tax and there is no requirement for the executor to elect to step up basis (since it already is stepped up to FMV).

For estates over $5 million, the executor may elect to apply the estate tax repeal rules, meaning there is no estate tax on a billion dollar estate. Under this election, there is no step up of basis to FMV, other than the 1.3 million general step up election, plus the $3 million additional step up for surviving spouses. If the executor elects estate tax repeal for 2010, the executor has to also file that form allocating the 1.3 million and $3 million basis step up for elected assets.

There is probably going to be some complicated calculations for estates just over the $5 million exemption amount for 2010. For example, an estate valued at $6 million might still want to pay estate tax on the $1 million excess amount, rather than subject the beneficiaries to capital gains tax on the full $6 million (minus the $1.3 million step-up) in cases where the decedent had a low adjusted basis in estate property. Obviously, a $100 million estate is going to want to elect estate tax repeal for 2010.

[taxea]

http://mastertype.blogspot.com/2010/12/estate-and-gift-tax-relief-in-2010-tax.html