Federal Estate and Gift Tax Changes

The tax legislation enacted in late 2010 has five significant components:

1)      The federal estate tax exemption for individuals dying in 2011 and 2012, is $5 million with a federal estate tax rate of 35%.  Beneficiaries  who receive assets from individuals dying in 2011 and 2012 will receive a ‘step up” in bases to the fair market value of the asset at the date of death of the decease;

2)      The legislation allows any exemption that remains unused at the death of the second spouse who dies in 2011 or 2012 to be used by the surviving spouse in addition to his or her own $5 million exemption.  This is referred to as portability;

3)      The federal gift tax exemption for taxable lifetime transfers in 2011 and 2012 is $5 million with a federal gift tax rate of 35%;

4)      The generation skipping transfer (“GST”) tax exemption for transfers in 2011 and 2012 is $5 million with a GST tax rate of 35%; and

5)       The estates of individuals dying in 2010 are presumed to have $5 million in federal exemption, an estate tax rate of 35% and a full step up in basis, however, executors have the option of electing to have no estate tax but having only a limited step up in basis.

But everyone needs to remember that Massachusetts has “decoupled” from the federal estate tax structure and any estate valued over $1 million dollars is taxable thus requiring state if not federal tax planning to be undertaken by estate planning attorneys in Massachusetts.