Summary of Estate Tax Law 2009-2011

Federal Estate Taxes are a subject of much controversey and as of this writing in a state of flux.  In 2001, a new estate tax law was enacted with a goal of eventually eliminating the estate tax beginning in 2010. 2010 is the last year of the law and if a new law is not enacted by congress the 2001 law will "sunset" and the pre-2001 estate tax system will be re-enacted.  Most estate planning commentators expect some version of the 2009 law to be in place sometime in 2010 and be retro-active to January 1, 2010.  Here's a summary of the estate tax laws for 2009, 2010 and 2011

2009: Each person's estate receives a 3.5 million dollar exemption from estate tax.  Every dollar in your estate above the 3.5 M exemption will be taxed at a rate of 45%.  Any property inherited(other than any tax deferred accounts) by will or trust will result in a stepped up basis for the heir (ie The value of the property when the person passed on will be deemed to be the price the heir paid for the property when they sell it).

2010: There is no estate tax.  However, any property inherited by will or trust will now result in a carryover basis( whatever the person who passed paid for the property plus the cost of capital improvements) being assumed by the heir.  Thus if the heir sell the property they will pay an income tax on the price the property is sold for less the carryover basis.  There is a provision of a 1.3M stepped up basis for each person's estate and a 3M stepped up basis for the surviving spouse.  If this law prevails, determining the carry over basis will be a nightmare.

2011 & 2012:  Congress enacted a temporay estate tax law where the estate tax and gift tax exemptions have risen to 5 million dollars.  The top estate tax rate is now 35%.  If a new law is not enacted by 2013, the exemption levels may return to 1 million dollars and a 55% tax rate.

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Brian Chew, the managing partner of OC Wills & Trust Attorneys, has extensive experience in the areas of estate planning, asset protection planning, business succession planning, long-term care planning, and veterans’ benefits. By devoting his practice to estate planning matters, he has founded a firm that strives to provide exceptional service to their clients by working closely with individuals and their families to create comprehensive and customized estate plans. For the past twenty five years, Brian has served thousands of clients in the matters of estate planning, wills and trusts. If you have any questions about this article, you can reach Brian Chew here.