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January 6th, 2010
Estate Tax Update
By now, many of you have heard about the dramatic - and, many pundits would add, inexplicable - changes to the Federal estate tax law that became effective as of January 1, 2010 and will apply through the end of the calendar year.
In a nutshell, the changes are as follows: (i) the Federal estate tax and the generation-skipping transfer ("GST") tax are repealed; (ii) new and highly technical rules establish the tax basis of inherited property; and (iii) the Federal gift tax remains in force (with a $1 million exemption for lifetime gifts), but the top marginal gift tax rate is reduced to 35%.
These new rules will have the following effect:
- The estate of any individual dying in 2010 will pass completely free of Federal estate tax, even if the entire estate passes to a beneficiary other than the surviving spouse, and regardless of the size of the estate.
- Property passing in 2010 under a Will or by lifetime gift to grandchildren or more remote descendants will not trigger GST tax, regardless of the size of the bequest or gift.
- The income tax basis of property included in the estate of an individual dying in 2010 will no longer receive a "step-up" to date-of-death value. The "step-up" had the practical effect of erasing most capital gains on sales completed soon after a decedent’s death. Instead, inherited property is subject to complicated "carry-over" basis rules, although the first $1.3 million of unrecognized gain is exempt. (An additional $3 million exemption applies to certain property inherited by the surviving spouse.)
The temporary one-year repeal and related changes resulted from a quirk built into the 2001 tax overhaul legislation, which Congress failed to fix in the waning months of last year. Absent future Congressional action, these temporary rules will expire on December 31, 2010; the Federal estate tax and GST tax will be reinstated (although at the pre-2001 higher marginal tax rates and lower exemption levels); and the step-up basis rules will be restored. It is widely anticipated, however, that Congress will enact legislation sometime this year that would impose a uniform and stable set of estate tax rules and might even attempt to revoke the temporary repeal retroactively
How to Proceed
Without a doubt, we are entering a very unusual period, when even the reputed "certainty" of death taxes may be called into question. In light of these developments, we believe this particular New Year presents the ideal time to address your estate planning and consider the opportunities and risks posed by the new law. More than ever before, a comprehensive analysis of your Will and related documents is essential to ensure that the documents effectively and tax-efficiently implement your objectives.
If you have questions about the current state of the law, or about any other estate planning issues, please contact Barbara Shiers at firstname.lastname@example.org or (212) 826 5526, Linda Wank at email@example.com or (212) 826 5546 or any of the other members of our Estate Planning & Administration Group.
Disclaimer. This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.
Other Estate Planning Law Alerts
Is Now the Time to Revisit Your Estate Plan?
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. The Act temporarily doubles the estate, gift and generation-skipping transfer ("GST") tax exemption amount. Read more.
January 4 2018
IRS Proposes Rules to Deny Estate and Gift Tax Discounts for Family Businesses
There's important news for family business owners and their heirs. Read more.
August 23 2016
Recent Estate Tax Changes Create Planning Opportunities
On April 1, 2016, the New York State ("NYS") estate tax exclusion amount increased to $4,187,500, further narrowing the gap between the NYS estate tax exclusion amount and the Federal estate, gift and generation-skipping transfer ("GST") tax exemption amounts ($5,450,000 as of January 1, 2016). Read more.
April 25 2016