Congress adjourned at the end of 2009 without reaching agreement on estate tax legislation.

  • As of January 1, 2010, there is a one year repeal of the federal estate tax and generation skipping transfer tax, reverting to a $1 million exemption for both taxes in 2011.
  • Congress may reinstate these taxes during 2010, and may make reinstatement retroactive to January 1, but retroactivity may be challenged.
  • While there is no estate tax, there will also no longer be a step-up in basis on estate assets to date of death value. Instead, estate assets will take a carry-over basis, subject to certain adjustments.
  • Federal gift tax remains in effect, reduced to a 35% rate. The $1 million lifetime gift exemption remains in place.

As a result, your estate plan may need to be reviewed, especially if the division of assets is driven by a formula based on the estate or generation skipping transfer tax.

For example:

  • If the surviving spouse is not a beneficiary of the B Trust (the portion under prior law that captured the estate tax exempt amount), he or she could be disinherited.
  • The division formula may result in all of the assets being held for the surviving spouse in the more restrictive B Trust.
  • If the B Trust has any beneficiaries in addition to the spouse, there may be an unanticipated Ohio estate tax.
  • If the estate plan includes an allocation based on the generation skipping transfer tax exemption, it could result in either all of the assets being held in trust for the lifetime of children or in children being bypassed completely in favor of grandchildren.
  • If your estate plan includes tax driven charitable distributions, you may want to revisit your charitable provisions.