Tax: Estate, Gift and GST Tax Changes Signed Into Law by President Obama

12.21.10

On December 17, the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act). The bill is now the latest addition to the Internal Revenue Code.

As widely reported in the media, the 2010 Tax Relief Act extends the Bush-era tax cuts for two years. The 2010 Tax Relief Act also reinstates the estate tax and reunifies it with the gift tax, instituting a $5 million exemption that can be used either during lifetime or at death. The law in effect prior to 2010 provided a $3.5 million lifetime exemption for estates, but only $1 million for gifts. From a planning standpoint, a nice feature of the new law is that it makes it easier to transfer the $5 million exemption to a surviving spouse, so married couples can shield $10 million of their assets from taxes. In the language of tax professionals, the estate tax exemption will be "portable." The generation-skipping transfer ("GST") tax is also reinstated, with an exemption of $5 million. Beginning in 2011, the tax rate for gift, estate and GST taxes will be 35%. Because the estate and gift tax rates will both be 35% in 2011, plans for year-end gifts in 2010 may not be as compelling in some circumstances as we originally anticipated. However, the 2010 Tax Relief Act has provided one very significant year-end planning opportunity - large gifts can be made to grandchildren (either outright or in trust, provided the trust is drafted properly) without using any of the donor's GST exemption. This was not the case under prior law and will not be available after December 3, 2010.

This increase in the gift tax exemption from $1 million to $5 million was not expected by tax lawyers and other estate planners and is probably one of the most significant changes to prior law. The five-fold increase in the gift tax exemption will provide significant planning opportunities.

We will continue to monitor the situation, and keep you apprised of any new developments. In the meantime, if you would like more details about any aspect of the 2010 Tax Relief Act, please do not hesitate to contact a member of our Wealth Management Practice Group.

Harry V. Rouse 918.591.5325 hrouse@dsda.com
Varley H. Taylor 918.582.1211 varleytaylor@gmail.com
Kassandra M. Bentley 918.591.5259 kbentley@dsda.com
Leah M. Ward 918.591.5230 lward@dsda.com

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Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
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