A Temporary Fix: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

NB: This article was published on January 10, 2011 and contains information that may be outdated. For current information regarding the estate tax, read: Estate Tax Certainty…For Now.

It came down to the wire, but on December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 into law. If Congress had not acted before the end of the year, estates valued at over $1 million would have faced estate taxes of up to 55 percent starting on January 1 of this year.

The new law sets the estate tax rate at 35 percent for individual estates valued at over $5 million. It also:

1. 1. Sets a $5 million generation-skipping transfer tax exemption and a zero percent rate for those dying in 2010. The generation-skipping tax rate for those dying after December 31, 2010 is 35 percent.

1. 1. Reunifies the federal estate and gift taxes for gifts made after December 31, 2010 so that the gift tax exemption and maximum tax rate is equal to the estate tax exemption and maximum estate tax rate.

1. 1. Allows portability of the estate tax exemption between spouses. Any part of the estate tax exemption that has not been used by a predeceased spouse who dies after December 31, 2010 can be transferred to the surviving spouse for use in addition to the surviving spouse’s exemption.

1. Applies retroactively to January 1, 2010, but allows an executor of an estate of a person who died in 2010 to choose no estate tax and modified carryover basis rules that were in effect for 2010.

The new law is temporary and is set to expire on December 31, 2012, which means that if Congress doesn’t pass new legislation before then, we’ll find ourselves facing the same uncertainty we did just a few weeks ago.