February 2010
Practice Group(s):
Private Clients,
Trusts & Estates
Suspension of Federal Estate and
Generation-Skipping Transfer Taxes Now
in Effect (Texas)
You have probably read in the news reports of the expiration of the estate tax. The K&L Gates Private
Clients, Trusts & Estates Group thought you might appreciate an update on the status of estate, gift
and generation-skipping transfer (“GST”) taxes. Due to Congressional inaction in 2009, a one-year
suspension of the federal estate and GST taxes took effect January 1, 2010.
The federal gift tax remains in effect (with some changes) in 2010, with a $1 million per person
lifetime exemption, a $13,000 per donee annual exclusion and a top gift tax rate reduced from 45% to
35%.
If there is no further action by Congress, in 2011 the maximum gift, estate and GST tax rate will be
60% with a $1 million gift and estate tax exemption, and a GST tax exemption of $1.1 (indexed for
inflation). The carryover basis regime of 2010 would no longer apply to estate assets in 2011.
Another significant change for 2010 is the creation of a “carryover basis” regime for the purpose of
determining the tax basis of property acquired from a decedent. The executor of an estate can allocate
additional basis in certain cases to bequests made in a qualifying manner.
Many estate plans and related documents were created with the assumption that a federal estate tax
and a GST tax exist. Your estate plan may contain provisions that are defined or described with
reference to those taxes. As a result, the meaning of your current planning documents may be unclear,
or your plan may have unintended effects, if you die while there is no estate or GST tax or while the
exemptions or rates are very different from those anticipated when the plan was drafted. In addition,
your estate plan may not be designed to take advantage of the full basis increase allowed if you die in
2010. On the other hand, if Congress takes no retroactive action on gift, estate and GST taxes in 2010,
planning opportunities may exist under current law.
Congress is expected to address these issues in 2010 and change the rules again, perhaps retroactively.
The House of Representatives has approved a bill to reinstate the estate, gift and GST laws
retroactively. The Senate has this bill on the calendar for consideration. The timing, substance and
other details of any tax legislation are not now predictable with any degree of certainty. Lifetime
transfers made during this period may have unexpectedly favorable or unfavorable results.
Immediate action is not necessarily warranted in all cases. If you have any concerns at all, we advise
you to consult with your estate planning attorney concerning the impact of the current law on your
estate plan.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax
advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the
purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any
transaction or matter addressed herein.
Suspension of Federal Estate and Generation-Skipping
Transfer Taxes Now in Effect
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