Last year was a very odd year for the estate tax. Due to provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed during 2010 after having been regularly imposed since its inception in 1916. Right off the bat this raised some very interesting questions. Why should the heirs of someone with an estate valued at over $1 billion such as George Steinbrenner who died in 2010 pay no estate tax when so many families have paid large estate tax bills on far less money over the years?
In addition to this, there was uncertainty regarding the future of the estate tax throughout 2010. Under the laws as they stood throughout the year, the estate tax exclusion was set to return to the 2002 level of $1 million and the rate of the tax was scheduled to revert back to the 2001 rate of 55% in the beginning of 2011 when the tax returned. But throughout the year it was known in estate planning circles that legislators could pass a measure to change these parameters.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was ultimately passed and signed into law during the middle of December. It set the estate tax exclusion at $5 million and the rate at 35%. Other changes contained in this measure that impacted estate planning included making the estate tax exclusion portable as well as making the gift tax and generation-skipping transfer taxes consistent with the estate tax. These two levies are also carrying a $5 million exemption and a 35% rate.
However, this new tax act imposed the estate tax retroactively to the beginning of 2010, in essence repealing the repeal. However, the legality of such a move is questionable. So the government is allowing the executors of the estates of people who died in 2010 to opt out of the estate tax by filing IRS Form 8939.
So regardless of the terminology you want to use at this point, the heirs of people who died in 2010 can opt out of the estate tax if they file this form. The IRS says that it will finally be made available on November 15th. No one said this would be easy.
Author, President and Founding Attorney
Parman & Easterday