Tax Relief Act of 2010

In 2009, federal estate taxes were only assessed if the value of the assets per person was more than $3.5 million. The federal estate tax was repealed entirely in 2010, meaning there would have been no estate tax regardless of the size of the estate in 2010, unless Congress enacted a new federal estate tax law and made it retroactive (yes, the courts have held Congress can make a new tax law retroactive, up to 14 months, where the type of tax wasn’t a suprise!  Estate of Cherne v. United States, 170 F.3d 961 (9th Cir. 1998).) In 2011, the estate tax exemption would have reverted back to $1 million with tax rates up to 55% in 2011 unless Congress changed the law…. which they just did!

Under the Tax Relief Act of 2010, the estate tax rate is set at 35% for two years (through 2012) and the estate tax exemption is $5 million (adjusted for inflation after 2011). For estates of decedents dying in 2010, an election will be available either to be subject to the reinstated estate tax or to be subject to the modified carryover basis rule. The election between the reinstated estate tax and the modified carryover basis rule is made by the estate (i.e., the trustee), not the beneficiaries.