Will estate tax relief come this year?

March 1, 2010

Estate tax repeal is now officially under way. However, repeal may be temporary, as many believe Congress will revive the tax this year.

Key Points

Q: Is it true that there will be no estate taxes if one dies in 2010?

Under this year's law, there will be a modified carryover basis option. In 2010 during the estate tax repeal, the basis of property acquired from a decedent will be the lesser of the decedent's adjusted cost basis or the fair market value of the property as of the date of death. As a result, many estates/beneficiaries may be subject to capital gains tax upon the sale of the assets. The carryover basis regime is instituted with a $1.3 million per-person exemption, plus a $3 million marital exemption that will be indexed for inflation. The gift tax will not be repealed in 2010. After a $1 million exemption, the maximum gift tax rate will be approximately 35% in 2010.

Although estate taxes are widely debated, the tax currently affects few estates. Last year, about 5,500 estates were subject to estate taxation, just .23% of all estates. According to a Congressional Joint Committee on taxation, the new law, due to the addition of capital gains taxation, would affect a projected 71,000 estates in 2010.

Since federal estate tax returns are not due until 9 months after the date of death, executors of estates of those dying on or after Jan. 1, 2010 will be able to take into account the possibility or probability of any retroactive reinstatement of the estate tax within the first 9 months of 2010. Be sure to consult with your estate tax planning attorney to determine what actions, if any, need to be made relative to your specific situation.