Changes to the Estate and Gift Tax Under the New Tax Act

On Dec. 17, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. In essence, the act extends through 2012 most of the so-called “Bush era tax cuts,” which were originally contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). With respect to the federal estate tax, generation-skipping transfer tax and gift tax, the act defers for two years the “sunset” of the EGTRRA provisions, but with several significant modifications.

EGTRRA phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010. The gift tax remained in 2010, subject to a $1 million exemption amount and a maximum gift tax rate of 35 percent. The EGTRRA phase-out and eventual repeal of the estate and generation-skipping transfer tax were scheduled to “sunset” in 2011. Therefore, absent legislation, the estate and generation-skipping transfer taxes would have been reinstated in 2011 with the pre-EGTRRA unified exemption amount of $1 million and a top tax rate of 55 percent.