In spite of predictions to the contrary, Congress has allowed the 2001 Tax Act to remain in place. This means that for the year 2010 (but not subsequent years), and unless Congress takes action:
The most significant fact is that the federal estate tax is repealed for the estates of persons dying after December 31, 2009.
The House of Representatives passed a bill in December extending the current (2009) provisions with a top rate of 45% and a $3,500,000 exemption amount, as the administration had requested, but the Senate failed to act.
We expect that attempts will be made in 2010 to enact similar legislation, likely retroactive to January 1, but when that might occur is unclear. However, many have questioned the constitutionality of a retroactive tax bill.
If Congress fails to act in 2010, the pre-2001 tax law, with a top estate and gift tax rate of 55% and a $1,000,000 exemption amount, will return for estates of persons dying after December 31, 2010, as will the GST tax.
This does not affect state estate taxes. That is, New York continues with its top rate of 16% and a $1,000,000 exemption amount; New Jersey continues with the same 16% top rate but a $675,000 exemption amount, and Connecticut’s new law effective January 1, 2010 will have a top rate of 12% and a $3,500,000 exemption amount.
The step-up in basis previously allowed to inherited assets is limited for 2010. That means, in general, that if your estate or your heirs wish to sell your securities or your home or other assets, they may be subject to a capital gains tax determined by reference to your cost basis.
It is difficult to determine what opportunities for tax planning may be lurking here, for it is unclear what the Congress will actually do, and whether or not any attempts at retroactive changes will be upheld when challenged in the courts. We continue to monitor the situation and we encourage you to contact us if you would like to discuss your personal situation.
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Edmund J. Behan |
212-238-8630 |
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Jerome J. Caulfield |
212-238-8809 |
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Michael I. Frankel |
212-238-8802 |
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Stephen F. Lappert |
212-238-8717 |
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Daniel J. McSwiggan |
212-238-8760 |
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Ronald D. Spencer |
212-238-8737 |
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Theodore R. Wagner |
212-238-8705 |