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Temporary Repeal of Federal Estate and Generation-Skipping Taxes in 2010 Causes Uncertainty

December 2009

Due to the inability of Congress to act before the end of 2009, on January 1, 2010 the federal estate and generation-skipping taxes will be repealed for one year until January 1, 2011. You should take note of the following:

  • Congress is likely to reinstate both the estate and generation-skipping taxes at some point in 2010 and make these taxes retroactive to January 1, 2010, despite potential court challenges that retroactivity is unconstitutional.
  • It is not yet known if the reinstated estate and generation-skipping taxes will continue to have an exemption of $3,500,000 for each and a tax rate of 45%, which were applicable in 2009.
  • During the period of repeal, the federal gift tax remains in effect at the rate of 35% on taxable gifts in excess of the $1,000,000 exemption (the 2009 rate for gifts in excess of the exemption is 45%).
  • In addition, during repeal there is no automatic step-up in basis for estate assets (although the executor may elect a step-up for a limited amount of assets).
  • Wills or Revocable Trusts for married persons that use a formula linked to the federal estate tax to create (i) a "credit shelter" trust and (ii) a marital trust or outright bequest should be reviewed.
  • Planning opportunities may exist in early 2010 for those clients willing to make gifts, especially to grandchildren, either outright or in trust, including through GRATs.
  • If Congress again fails to act in 2010, the estate and generation-skipping taxes will be reinstated on January 1, 2011 with a $1,000,000 exemption for each and the highest estate, gift and generation-skipping tax rate will be 55%.

Please contact your estate planning attorney at Wolff & Samson PC (see following) if you have questions or would like more information. We will continue to keep you updated during this period of uncertainty in the law.

Tax, Trusts and Estates Group at Wolff & Samson PC:

David L. Schlossberg
Member of the Firm
Phone (973) 530-2010
Email dschlossberg@wolffsamson.com

Sean M. Aylward
Member of the Firm
Phone (973) 530-2105
Email saylward@wolffsamson.com

Roxanna E. Hammett
Member of the Firm
Phone (973) 530-2039
Email rhammett@wolffsamson.com

Carl B. Levy
Of Counsel
Phone (973) 530-2035
Email clevy@wolffsamson.com

Shannon L. Keim
Associate
Phone (973) 530-2084
Email skeim@wolffsamson.com

Farah N. Homsi
Associate
Phone (973) 530-2044
Email fhomsi@wolffsamson.com