New Estate and Gift Rules

Congress has clarified the estate and gift tax rules. Estate transfers are transfers of property at death while gifts are transfers of property during one’s lifetime. Congress has allowed property to be transferred tax-free, but once certain thresholds have been reached the property is taxed, usually at very high tax rates. Both the estate and the gift tax rules have been changed for 2011 and the new rates will be effective through 2012.
Over the last decade, the estate tax credit has gradually been increased form $1 million in 2001 and $3.5 million in 2009. People dying in 2010 were not subject to any federal estate tax but in 2011 the rules were to revert back to their 2001 level of $1 million-$2 million for married couples, and a top rate of 55 percent. Fortunately, Congress dealt with the exemption for 2011 to $5 million with a flat 35 percent tax on amounts in excess. In 2011, heirs will also get to use the date-of-death valuation to step up the basis of assets inherited. The modified carryover basis rules that estates could elect to use in 2010 don’t apply.
While the estate tax exemption was gradually rising from $1 million to $3.5 million the lifetime gift tax exemption had not been changed. Congress has now realigned the gift tax with the estate tax increasing the gift tax to $5 million.

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