The State of Estate Taxation in 2010

Well, January 1 has come and gone and Congress has taken no action regarding the federal transfer tax system (estate & gifts taxes).  What does this mean?  As of 01/01/2010, the major rules are as follows:

1. There is no Estate Tax
2. There is no Generation Skipping Transfer Tax (GST)
3. The Gift Tax remains in effect, although the tax rate drops to 35%.  The annual exclusion for 2010 is $13,000, and the lifetime exemption remains unchanged ($1,000,000).
4. The "Stepped Up Basis" rule has been eliminated except for two situations:
• The first $1.3 million of built in gains (total) transferred to non-spouse beneficiaries and
• The first $3.0 million of built in gains transferred to a spouse

As discussed in previous posts, if Congress takes no action all year, on January 1, 2011, the law will change again, and the Estate Tax, GSTT, and Stepped Up Basis rules come back in full force (and with higher rates and lower exemptions than what existed in 2009).

What will happen now?

No one can predict what Congress will do, but there have been assurances from important figures that estate tax reform is high on the agenda, and the intention is to pass such legislation and make it retroactive to January 2010. Many commentators question whether such a move would be constitutional.  Either way, you can be sure we'll have years of lawsuits to look forward to on this one.


I invite you to contact me directly with any questions or concerns you might have.  The new laws, regardless of how short lived they might be, provide significant tax saving opportunities for many people. At a minimum it is highly recommended that you review any documents and plans you currently have in place to ensure they will achieve the desired results for your family in this greatly altered and highly unpredictable environment.  As a dedicated estate planning law firm, Donlon & Associates continues to provide our current and prospective clients with the highest quality tax advice and legal counsel in this field.

Joseph Donlon, Esq.