The only certainties in life are death and taxes. However, 2010 has definitely brought some uncertainty concerning federal death tax, which expired December 31, 2009. Generally, congressional leaders have stated that the death tax will be re-enacted retroactively to January 1, 2010. Most of us expect death taxes to be reinstated—what we don’t know is the effective date and the level. We believe that the likely level is to reinstate it at the 2009 exemption of $3.5 million with a rate of up to 45% on the fair market value above the $3.5 million.
The gift tax has remained in place for 2010 with an annual exclusion amount of $13,000 per done, per donor. Gift amounts in excess of the annual exclusion first reduce the donor’s lifetime $1 million exemption, and amounts above that are taxed at 35%.
If Congress does not act, the Bush tax cuts of 2001 expire, and the estate and gift tax exemptions and rules return at the 2001 level on January 1,2011. Under the 2001 rules, the maximum gift and estate tax rate was 55% with an exemption of $1 million per person.
Those concerned with the potential of a taxable estate could benefit with transfer planning.