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New estate tax law for two years

Finally some direction for the estate tax law but still uncertainty after two years.

The President signed into law this past Friday the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The following are a summary of changes with respect to the estate, gift and generation skipping tax, but only to last for two years and if not adjusted, then on January 1, 2013, will revert back to the law of 2001. The changes are as follows:

For the period from January 1, 2011, through December 31, 2012, the estate tax rate will be a maximum of 35% with a $5 million applicable exclusion per person.

The estates of decedents that died in 2010 have an option to (1) choose the estate tax at a top 35% rate and $5 million applicable exclusion and the elimination of the modified carryover basis rules of 2010, or (2) choose no estate tax and the modified carryover basis rules as have been in effect for 2010.

The law allows transferability of the applicable exclusion among spouses. Thus the surviving spouse may take advantage of any unused portion of the applicable exclusion amount of his or her spouse.

The gift tax is now reunited with the estate tax for two years with the top gift tax rate of 35% and an applicable exclusion of $5 million. This gift tax change is not retroactive to 2010; thus there is no option to change the 2010 law which provides for a $1 million exclusion and the top bracket of 35%.

Generation skipping tax is reinstated for two years similar to the estate tax with a $5 million exemption and a 35% top rate.

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