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Important Estate and Generation-Skipping Transfer Tax Changes Effective January 1, 2010

As you may have already heard, Congress did not act before the end of 2009 to extend or amend existing federal estate and generation-skipping transfer tax laws.  As a result, estate and generation-skipping transfer taxes have been repealed for individuals dying during 2010 and for generation-skipping transfers made in 2010.  Generally, gift tax laws will not change for 2010, except that the maximum rate will decrease to 35%.  While this may appear at first blush to be good news, provisions contained in many wills and revocable trusts prepared prior to 2010 in anticipation of a permanent “estate tax fix” prior to the end of 2009 may yield substantial adverse or unanticipated consequences for persons dying this year. 

Under the Internal Revenue Code as it now stands, on January 1, 2011, the estate tax and generation-skipping transfer tax will again be effective with the rates up to 55% and an exemption of $1,000,000.  For 2009 the maximum tax rates were 45% and the exemption was $3,500,000. Also, under current law for 2010, assets passing to an estate beneficiary or to a revocable trust beneficiary will not have their income tax cost basis adjusted to date of death values (there are exceptions for the special basis adjustment and marital adjustment - $1,300,000 and $3,000,000 adjustments respectively). 

The most certain impact of the repeal is considerable uncertainty as to many provisions and planning arrangements.  Congress may act at some point to reinstate estate and generation-skipping transfer taxes in some form, and it is possible that any changes will be retroactive to the first of this year.  It is not possible to predict how, if or when Congress will act. 

It is now, however, appropriate to review existing estate plans to determine if they should be amended.  Wills and trusts which refer to the marital deduction, the federal estate tax, the unified credit, the estate tax exclusion amount (also referred to as the applicable exclusion amount), and/or the generation-skipping transfer tax, should be reviewed promptly. Also, any estate planning documents that have not been revised since 2001 are almost certainly out of date with respect to the current tax structure and should be reviewed.

If you are interested in any further information, please contact Lynne Green, (601) 960-6865, Jody Varner, (601) 960-6879, Louis Fuller, (601) 960-6874, or Charlie Penick, (601) 960-6922.

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