When you are keeping a very close eye on legislation that impacts the estate planning community you can’t help but make some interesting observations. The new tax bill that wound up being passed through Congress at the end of the 2010 calendar year involved issues that had been the subject of legislative debate throughout the year. Before the bill was constructed and voted on the debate was largely said to involve whether or not an “extension of the Bush tax cuts” was in order. This term, “Bush tax cuts,” has become synonymous with the Economic Growth and Tax Relief Reconciliation Act of 2001.
Once the new measure was passed (and by the time it went up for a vote it did receive bipartisan support) it certainly was not going to be formally referred to as “an extension of the Bush tax cuts.”
So we now have the rather wordy “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.” Going forward it is probably safe to say that this measure will be referred to as the “Obama tax cuts” by some, and the “extension of the Bush tax cuts” by others depending on who you are talking to.
However you choose to name the measure it does indeed impact estate planning. As has been widely noted it raises the estate tax exclusion to $5 million and reduces the top rate of taxation to 35%.
In addition to these changes the new tax act also affects the generation skipping transfer tax and the gift tax. The generation skipping transfer tax exemption has mirrored the estate tax exclusion in recent years, so in keeping with this trend it is now going up to $5 million. The lifetime gift tax exemption has been just $1 million, even back in 2009 when the estate tax exclusion was $3.5 million. But under the new law this exemption has been raised to $5 million as well, and the rate of taxation for both the gift tax and the GST tax has been set to match the estate tax rate of 35%.