Despite all the predictions to the contrary, Congress failed to enact legislation that would avoid the one-year repeal of the federal estate tax, which repeal is effective as of Jan. 1, 2010. As a result, there currently is no federal estate tax applicable to the estates of persons dying in calendar year 2010. In addition, the federal estate tax is scheduled to be restored for the estates of decedents dying after Dec. 31, 2010, but with a lower exemption and a higher maximum tax rate than existed in 2009.
Moreover, the failure of Congress to enact estate tax reform before 2010 has resulted in the one-year repeal, commencing on Jan. 1, 2010, of the generation-skipping transfer (GST) tax for GST transfers occurring during 2010. Furthermore, for income tax purposes, the income tax cost basis of assets that are inherited during 2010 will be the decedent’s income tax cost basis of those assets (i.e., “carryover” basis), rather than the federal estate tax value of those assets as existed under the law prior to Jan. 1, 2010, (i.e., “stepped-up” basis, which is a misnomer as basis can also be “stepped-down”), subject to certain limited exceptions.
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