New Bill Provides Estate Planning Clarity

Late December 16th, 2010 the House of Representatives passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and President Obama is expected to sign this bill. The bill sets the gift, estate and GST exemptions at $5 million per person and $10 million per couple, with the transfer tax rate set at 35%. The bill establishes portability between married couples so that unused exemption amounts may be utilized by the surviving spouse. The effective date of the estate and GST tax provisions is retroactive to January 1, 2010. The act also reunifies the gift, estate and GST tax exemptions as of January 2, 2011.

The bill also clarifies options for descendents dying in 2010 by providing a special election whereby an executor may elect to have carryover basis apply instead of the estate tax.

The new law does not limit valuation discounts nor does it seek to lengthen the term of Grantor Retained Annuity Trust (GRAT) terms. So for now the use of Family Limited Partnerships to transfer wealth and GRATs to transfer growth of assets between generations are still viable planning opportunities. This omission from the bill is key as both would have been revenue raisers.

Congress and the Administration have finally given us some clarity for estate planning for the time being. The provisions in this bill are set to expire December 31, 2012.