Trust and Estate Counsel

Tennessee Estate Planning Law

Insight and commentary on estate planning issues impacting affluent residents of Tennessee

Tax Hike Prevention Act of 2010 Introduced in Senate

The Senate Finance Committee has released the text of the proposed bill to make various tax changes that were agreed to by President Obama and Republican Congressmen earlier this week.

On the income tax front, the bill would extend all of the so-called “Bush” tax cuts for two years and provide a two year fix for the alternative minimum tax.

There is a one year payroll tax reduction that will reduce the employee’s share of the payroll tax by two percentage points, from 6.2% to 4.2%.

Numerous tax “extenders” will apply for 2010 and 2011. These extenders include the deduction for state and local sales taxes and the charitable IRA rollover of up to $100,000 for individuals who are at least 70½. Apparently, if you fail to make a charitable gift in 2010, you will be able to double up and give up to $200,000 in 2011.

On the estate tax front, estate taxes are reinstated for decedents dying in 2010. However, there is an election for 2010 decedents to be subject to the carryover basis regime rather than the estate tax regime. The estate tax exemption is increased to $5 million per person and the top estate tax rate is capped at 35% for decedents dying in 2010, 2011, and 2012.

The estate tax exemption will be portable between spouses. To the extent the first spouse to die does not use his or her full exemption, it may be used by the surviving spouse if the surviving spouse dies before December 31, 2012 (or if this law is later extended).

The gift tax exemption will increase from $1 million to $5 million for 2011 and 2012 with a maximum rate of 35%. This 2 year increase in the gift tax exemption will create numerous planning opportunities.

GST exemption is increased to $5 million. Gifts to grandchildren in 2010 will not be subject to GST tax. 2010 distributions from non-exempt trusts to grandchildren will not be subject to GST tax. Several of my clients have already taken advantage of this opportunity. Others have been waiting for confirmation of this opportunity from this tax bill.

The overall revenue impact of the bill is estimated to be $860 million over the next three years.

There is uncertainty as to whether the bill will get enacted. Therefore, it would be prudent to wait a week or so before pulling the trigger on a year-end transaction that might be impacted by this bill

I will provide more details about the proposed legislation, especially about year-end planning opportunities, in future articles.