CCH Summary of Estate, Gift, and GST Taxes

“Federal Estate Tax

EGTRRA generally reduced the federal estate tax until completely abolishing it for decedents dying in 2010. After 2010, the pre-EGTRRA estate tax (with a maximum tax rate of 55 percent and a $1 million applicable exclusion amount) was scheduled to be revived. Additional EGTRRA changes affected the gift and generation-skipping transfer (GST) tax.

The 2010 Tax Relief Act reinstates the estate tax at a maximum rate of 35 percent with a $5 million exclusion amount for decedents dying after December 31, 2009 and before January 1, 2013.

COMMENT. The new law also allows “portability” between spouses of the estate tax applicable exclusion amount and extends some other taxpayer-friendly provisions originally enacted in 2001.

The 2010 Tax Relief Act gives estates of decedents dying after December 31, 2009 and before January 1, 2011, the option to elect to apply (1) the estate tax based on the new 35 percent top rate and $5 million applicable exclusion amount, with stepped-up basis or (2) no estate tax and modified carryover basis rules under EGTRRA. An election is revocable only with the consent of the IRS.

Gift tax. The 2010 Tax Relief Act continues the EGTRRA gift tax rate of 35 percent and maximum exclusion amount of $1 million for gifts made in 2010. For gifts made after 2010, the gift tax is reunified with the estate tax with a top gift tax rate of 35 percent and an applicable exclusion amount of $5 million.

Generation-skipping transfer (GST) tax.

The GST tax acts in tandem with the estate tax to ensure that the transfer of wealth is taxed on a generation-by-generation basis. Under the 2010 Tax Relief Act, the GST exemption amount is $5 million with a GST rate of zero for GSTs made in 2010. For transfers made after 2010 and before 2013, the exemption amount is $5 million with a GST tax rate of 35 percent. Other changes made to the GST tax under EGTRRA are also extended for two years under the 2010 Tax Relief Act.”