California Estate Planning Blog by Kevin Staker

December 10, 2010

Actual Tax Bill Has Blockbuster Additions! Retroactive to 2010! Gift Tax Exemption to $5,000,000!

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 5:49 am
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Majority Leader Reid (but all of this obviously drafted by Republican Senator Kyl’s staff) have added in the actual bill some extra goodies to the proposed tax law changes.  We had been hearing rumors of some of this but the total are are almost as amazing as the exemption and rate amounts.

–     The $5M exemption and 35 percent rate will be retroactive to January 1, 2010, unless the estate elects no estate tax but then has only limited step up in basis.  This means most estates will automatically get a full step up in income tax basis unless they elect otherwise.

–     Estate of surviving spouse can use the unused portion of the estate tax exemption of the first spouse to die (“portability of estate tax exemption”).  Effective 2011 and 2012.

–     Gift tax and generation skipping transfer tax exemptions will also  be $5,000,000!  Holy moly this continues to amaze.  The rich will have a two year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations.

The first two add ons are pretty popular and so would likely pass.  However, this last item is such a blockbuster it may be the straw that breaks the camel’s back with the Democrats.  You thought you had seen open rebellion among the Democrats in the House yesterday.  Just see how they react today.  They will be climbing out of their skins.  This provision is such a “bridge too far” as Speaker Pelosi has put it that you may lose more Democratic senators and even a Republican or two.  This will give the wealthy some amazing tools for sheltering assets from the estate tax.

If all this passes, this act will be a bonanza of work for estate planning attorneys such as me.

Again, this shows how bad I can be at predicting.  Until yesterday, I had been dismissing any talk of a retroactive fix of the estate tax and step up in basis.

The Act is called the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”.

Kudos to Hani Sarji for posting the first good analysis of the actual bill, with the first links I could find on the full text of the bill and the summary by the staff of the Senate Finance Committee.  These are found at his Forbes blog.



  1. Do you think it’s likely they’d reunify at $5M? It seems to me that if they reunify at $5M, they might as well make the $5M exemption permanent, because rich families can immediately “lock in” the full $5M on 1/1/11 by gifting their entire reunified exemption to a GST-exempt perpetual trust. Even if the exemption eventually returns to $1M in 2013, Congress can’t undo those 2011-2012 gifts, so even people who didn’t die in 2011 and 2012 would still get the full $5M.

    Comment by Ben — December 10, 2010 @ 11:40 am | Reply

  2. You are exactly correct.

    Comment by kevinstaker — December 10, 2010 @ 11:41 am | Reply

  3. […] The law unifies the estate, gift and generation-skipping transfer tax exemptions at $5 million. (For 2010 there is no generation-skipping tax, while the gift tax exemption has been $1 million for a number of years.) A 35 percent tax rate will apply to gifts or transfers over the $5 million threshold. (There is no change in the $13,000 annual exclusion amount for gifts.) These high exemption levels mean that “[t]he rich will have a two-year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations,” wrote estates attorney Kevin Staker on his Estate Tax News Blog. […]

    Pingback by Obama Signs Tax-Cut Bill Setting Estate Tax Exemption at $5 Million for Two Years « Elder Law Center Blog — April 26, 2011 @ 6:17 pm | Reply

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