Temporary Expiration of the Estate and Generation-Skipping Transfer Taxes
by Jay A. Feller, CPA

The Economic Growth and Tax Relief Reconciliation Act of 2001 included provisions resulting in the repeal of the estate tax and generation-skipping transfer tax for one year starting January 1, 2010.

Although the leaders of Congress and the Administration had indicated their intention to revise the law during 2009 so the 2009 rates and exemptions would apply during 2010, this did not happen. Thus, effective at the beginning of this 2010 year, the estate tax and generation-skipping transfer tax are both repealed for one year.

Certain members of Congress have indicated a desire to retroactively impose the taxes to January 1, 2010. There is uncertainty whether a retroactive enactment of these taxes would be constitutional.

During this period of the repeal of the estate tax and generation-skipping transfer tax, you may wish to consider the following:

• Review estate documents and consider potential changes to them
• Reconsider outright bequests to spouse
• Reconsider making 2010 contributions to exempt trusts
• Nonexempt irrevocable trusts should consider making outright distributions to grandchildren during 2010
• Consider outright gifts to grandchildren
• Review post-mortem situations if a spouse has already passed in 2010
• Consider taxable gifts
• Revisit and reconsider gifts to trusts

Retroactive Change
The general consensus among many estate tax practitioners throughout the country is that the retroactive change to the tax laws will likely be upheld by the courts. Thus, any planning or action taken must consider the possible impact of retroactive legislation. Given that there is some uncertainty considering the validity of such retroactive legislation, it is likely that litigation would be filed and would be in the courts for years before a final resolution would be obtained.

As a firm, Somerset believes it is prudent for our clients to revisit estate and gift tax planning and related documents already in place to address all of the opportunities and pitfalls associated with this unprecedented estate and gift tax situation.

Sunset Provisions
For decedents dying, gifts made or generation-skipping transfers occurring after December 31, 2010, the tax law is to be applied and administered as if the provisions and amendments of the Economic Growth and Tax Relief Reconciliation Act of 2001 “had never been enacted.”

The expected result of this sunset will be a return to the tax law prior to the Act which, for estate and gift tax purposes, would mean a lifetime exemption of $1 million and a maximum rate of 55%, with a 5% surcharge on larger estates. In addition to the resurrection of the estate and generation-skipping transfer taxes, a number of other changes implemented under the Act would be affected.

The general consensus among many estate tax practitioners throughout the country is that these sunset provisions will not occur. However, given the uncertainty of this as well, Somerset believes the potential impact of such sunset provisions should be addressed by our clients.

If you have any questions about this brief summary, please contact your Somerset advisor or a member of our Estate Planning Team by email below or by telephone at 317.472.2200 or 800.469.7206:

Jay A. Feller, CPA
Patrick J. Early, CPA, CFP
Susan C. Bradford, CPA
Valerie K. Brennan, CPA
Steven T. Dum, CLU, ChFC, CFP
Larry W. Dykes, CLU, ChFC, AAMS
Michael A. Fritton, CPA
Susie M. Keaton, CPA
Jean F. Mynderse, CPA
Roy R. Rice, CPA
Steven J. Riddle, CPA/ABV, CVA, CFP, CFF
Thomas J. Thieme, CPA/ABV, CMA

Tax Times is provided by the Tax Team of Somerset CPAs for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact your Somerset advisor or a member of our Tax Team. This document is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.