Estate Tax Repeal (Or Not)

As many of you will recall, the federal estate and gift tax system was significantly modified in 2001. Many of the modifications of the 2001 Tax Act were to be phased in over a number of years.

As it stood in 2009, the major components included:

An estate tax exemption of $3.5 million A gift tax exemption of $1 million A $3.5 million exemption from the so-called generation-skipping transfer tax ("GST tax") A tax rate of 45% on transfers subject to estate tax, gift tax or GST tax The 2001 Tax Act provided for the following major changes to these transfer taxes to take effect after 2009:

Complete repeal of the estate tax (subject to certain exceptions applicable to noncitizens whose spouses died before 2010) and the GST tax, but not the gift tax Repeal of the rule which gives an income tax basis step-up to assets (subject to certain important exceptions) owned by an individual at death Reduction of the gift tax rate to 35% for gifts made in 2010 Treatment as completed gifts of certain transfers in trust, which would not have been so treated before 2010. Many of the modifications brought about by the 2001 Tax Act, including those outlined above, are subject to a "sunset" provision which would undo all of the modifications of the 2001 Tax Act after 2010 (which would have the much harsher pre-2001 rules come back into place).

Remarkably and regrettably, Congress adjourned in 2009 without addressing this wild roller coaster ride.

Although most observers believe that Congress will enact legislation in 2010 which will reinstate the estate, gift and GST taxes, probably at...