Taking Advantage of the Tax Relief Act of 2010

Taking Advantage of the Tax Relief Act of 2010

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 ("2010 Tax Act") became effective. Pub. L. No. 111-312. This new legislation provides planning opportunities for estates of decedent's dying in 2010 and for individuals and estates making generation-skipping transfers in 2010.

A special election is possible for estates of decedents dying in 2010.   Section 301(c) of the 2010 Tax Act allows the executor of the decedent's estate to elect to apply the Internal Revenue Code as if the new estate tax and step-up basis rules had not been enacted. In other words, instead of applying the new estate tax and step-up basis rules, the executor may elect to have the law, as enacted under the 2001 Tax Act, apply. If the election is made, the estate is not subject to estate tax, and the basis of assets acquired from the decedent is determined under the modified carryover basis rules of IRC Section 1022. Large estates (not covered by the $5 million exemption) that would otherwise have to pay substantial estate taxes will likely want to make this election.  However, the executor also must consider other factors, such as: 

  • The amount of the estate tax payable versus the gain that would be subject to income tax on a future sale of the assets;
  • Anticipated dates of sale;
  • Whether depreciation can be used to derive current income tax benefits even without selling an asset;
  • Ability to allocate basis adjustments up to fair market value at the date of death for assets likely to be sold in the near future;
  • Anticipated future capital gains rates; and
  • The present value of anticipated income tax costs against the current estate tax amount.

For the estate of a decedent dying after December 31, 2009 and before December 17, 2010 (the date of enactment of the 2010 Tax Act), the due date for filing a disclaimer pursuant to IRC Section 2518(b) for an interest in property passing by reason of the death of the decedent is extended to nine months after December 17, 2010 - NOTE: This date is September 17, 2011, which is a Saturday, so the extended due date would be September 19, 2011. Pub. L. No. 111-312, § 301(d). - Additional planning flexibility is available in light of the changes in the estate tax for decedent's dying in 2010.

The 2010 Tax Act retroactively reinstated the GST tax on generation-skipping transfers that occurred after December 31, 2009.  Pub. L. No. 111-312, § 301(a). For 2010 through 2012, the GST exemption is $5 million (indexed from 2010 beginning in 2012).  IRC Section 2631(c) and IRC Section 2010(c), as amended by Pub. L. No. 111-312, §§ 302(a) and 303(a). The GST tax rate for generation-skipping transfers occurring in 2010 is zero.  Pub. L. No. 111-312, § 302(c). For transfers occurring in 2011 and 2012, the GST tax rate is 35 percent.  For 2010, up to $5 million of GST exemption can be allocated on a timely basis to transfers to trusts in 2010.  Further, these rules provide an opportunity in 2010 to gift an unlimited amount outright and free of trust to a grandchild or more remote descendant without incurring a GST tax.  However, these gifts are still subject to the gift tax rules.


Discover the features and benefits of LexisNexis® Tax Center

For quality Tax & Accounting research resources, visit the LexisNexis® Store