Alerts

Estate Planning in 2010

01.04.10

There is no Estate Tax or Generation Skipping Tax under current law for one year beginning Jan. 1, 2010.

The Gift Tax Rate for gifts in excess of $1 million has been reduced to 35 percent for 2010.

Carryover Income Tax Basis rather than Value at Death Rules will apply in 2010.

How Did This Happen?

The changes occurred automatically pursuant to the terms of the Economic Growth and Tax Relief Reconciliation Act of 2001 (2001 Tax Act). At the time of the passage of these provisions of the 2001 Tax Act, most commentators believed that the 2001 Tax Act would be amended before Jan. 1, 2010. Because the attention of Congress was focused on national healthcare and the economic recession, the 2001 Tax Act was not amended in 2009.

Is Retroactive Amendment Contemplated?

It is certain that retroactive amendment will be attempted by Congress in 2010, and the Senate Finance Committee Chair has stated that Congress will "clearly work to do this retroactively." The chief house counsel for the House Ways & Means Committee has expressed his opinion that a retroactive bill may be unconstitutional. It is likely that any amendment containing a retroactive provision will cause litigation to be filed challenging the constitutionality of retroactivity for transactions and deaths that occurred before enactment. In addition, there is partisan debate over the substantive terms of amendment, with Republicans seeking a higher exemption and lower rate, and Democrats seeking to extend the $3.5 million exemption and the 45 percent rate in effect in 2009. If there is no amendment in 2010, the 2001 Tax Act reinstates the estate tax in 2011 with an exemption amount of $1 million, not $3.5 million, and a maximum tax rate of 55 percent.

What Should You Do?

There is no clear answer for clients with regard to their current estate plans. Many wills contain formula bequests, either to a marital trust or a by-pass trust, and the law as of Jan. 1, 2010 may create ambiguity with regard to interpretation of some of those formulas. We strongly recommend that each client review their individual wills and estate plans, particularly with regard to formula bequests. In addition, individuals with substantial estates may consider taxable gifts to grandchildren because of the possible dramatic tax savings under the law as of Jan. 1, 2010, if a retroactive amendment is not effective.

If you would like more information or would like to review your estate plan, please contact an attorney in the Trusts and Estates section of Gardere Wynne Sewell LLP in Houston or Dallas to schedule an appointment.


IRS CIRCULAR 230 DISCLOSURE:

This communication has not been prepared as a formal legal opinion within the procedures described in Treasury Department Circular 230. As a result, we are required by Treasury Regulations to advise you that for any significant Federal tax issue addressed herein, the advice in this communication (including any attachments) was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.


The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.

Operators

AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.

back to top