Steve Akers, Associate Fiduciary Counsel, Bessemer Trusts, provides the following comments regarding some of the proposals featured in a recently-defeated Senate amendment titled "Middle Class Tax Cut Act of 2010."
Steve R. Akers, Associate Fiduciary Counsel
Akers@bessemer.com
December 6, 2010
Senate Finance Committee Chair Max Baucus on December 2, 2010 introduced an amendment proposing the "Middle Class Tax Cut Act of 2010." While that bill was defeated in a Senate vote on Saturday, December 4, the bill contains some very interesting estate, gift and GST tax provisions that may emerge in future legislative proposals. Among other things, the proposal includes the following:
- The estate tax would be re-enacted and applied retroactively for 2010 decedents at 2009 levels ($3.5 million exemption indexed from 2009 beginning in 2011 and 45% top rate), but estates of persons dying in 2010 before the date of enactment could elect to be subject either to the estate tax or to carryover basis.
- There would be portability of the estate tax exemption between spouses if the first spouse to die does not use all of his or her exemption.
- Gifts and GST transfers made after the date of introduction (December 2) would be subject to the 2009 system ($1 million gift exemption, $3.5 million GST exemption, 45% top rate).
- Direct skip gifts in trust for grandchildren in 2010 would not have the potential problem of having the GST tax apply to later distributions from the trust to the grandchild.
- GRATs would have a 10-year minimum term requirement, effective for transfers after the date of enactment.
- The sunset rule of EGTRRA is cleaned up substantially. Much of the uncertainty under the sunset rule would be eliminated.
- Apparently there would be $3.5 million of GST exemption for 2010 that could be allocated on a timely basis to 2010 transfers to trusts.
This bill may have an important impact on transfer planning for the rest of this year. Making the gift and GST provisions effective as of the date of introduction was surprising. This bill did not pass the Senate (because of the political disagreement over extending the Bush income tax cuts just for the middle class). However, the possibility of having such an early effective date in future legislative proposals (or in a revised version of this proposal) will be a consideration in deciding how to structure year-end gifts, direct skip gifts, and transfers from GST non-exempt trusts.
Please click here for a more detailed overview of Senator Baucus's proposal.
Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal
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