H.R. 4853: Summary and Planning Points

Late last Thursday night, the Senate Finance Committee released H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the "Bill"). In addition to extending President Bush's income tax cuts, the Bill addresses the estate, gift and generation-skipping transfer (GST) tax laws for 2010, 2011 and 2012.

Most politicians and Washington insiders believe that the Bill will pass the Senate. Its fate in the House of Representatives is less clear, as it is possible that the Bill may not be proposed by the House before the expiration of the current session. In such case, it is likely (at least according to those who make predictions on these types of laws) that when Congress convenes in January, the Bill, or some form of the Bill, will pass and President Obama will sign it into law.

We have prepared a summary of the estate, gift and GST tax provisions in the proposed Bill, and provided planning points that clients should consider in the event that the Bill becomes law. Note that some of these suggestions would need to be implemented prior to the end of the year if the Bill passes this year.

  1. Estate Tax or No Estate Tax in 2010?

    For decedents dying in 2010, the estate tax applies. There is a $5 million estate tax exemption and a 35% top rate. The estate tax exemption will be indexed for inflation after 2011 (with rounding to the nearest $10,000). A full basis step-up applies. Estate tax returns for estates of decedents dying in 2010 will be due within 9 months after the Bill is enacted.

    Important Exception: executors of estates of decedents dying in 2010 can elect out of the estate tax regime so that no estate tax is due. If such an election is made, the basis step-up rule will be limited to $1.3 million for non-spousal beneficiaries and $3 million for spousal beneficiaries. The IRS will publish rules on when and how the election is to be made.

    Planning Points:

    If the value of the decedent's estate is $5 million or less (including gifts made during life in excess of annual exclusion gifts), an executor should not elect out of the application of the estate tax. No tax will be due, and a full basis step-up will be permitted.

    If the value of the decedent's estate is over $5 million, the executor should opt out if the benefits of the additional basis step-up are outweighed by the estate tax that would otherwise be due. A qualified tax professional can conduct such an analysis to determine whether the election...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT