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Important Estate Tax Bulletin

Client Advisory

December 29, 2009

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  • the federal estate tax is repealed;
  • the federal generation-skipping transfer (GST) tax is repealed;
  • the federal gift tax remains in place, but with a lower top rate of 35%, and
  • the automatic step-up in basis for inherited assets is largely eliminated.

The most significant fact is that the federal estate tax is repealed for the estates of persons dying after December 31, 2009.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.


Questions regarding this advisory should be addressed to:

Edmund J. Behan

212-238-8630

behan@clm.com

Jerome J. Caulfield

212-238-8809

caulfield@clm.com

Michael I. Frankel

212-238-8802

frankel@clm.com

Stephen F. Lappert

212-238-8717

lappert@clm.com

Daniel J. McSwiggan

212-238-8760

mcswiggan@clm.com

Ronald D. Spencer

212-238-8737

spencer@clm.com

Theodore R. Wagner

212-238-8705

wagner@clm.com



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was 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. © 2017 Carter Ledyard & Milburn LLP.
© Copyright 2009

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