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CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2011
CCH Whole Ball of Tax
is available in print. Please contact:
Leslie Bonacum
(847) 267-7153
Eric Scott
(847) 267-2179

Visit the CCH Whole Ball of Tax site often as new releases and other updates will be posted throughout the tax season.

CCH provides special CCH Tax Briefings on key topics at

2011 CCH Whole Ball of Tax
Release (09) | Back to WBOT

2011 CCH Whole Ball of Tax

Leslie Bonacum
, 847-267-7153,
Eric Scott, 847-267-2179,

Estate Tax Clearer for a Few Years; Longer Range Planning Remains Elusive  

CCH Sorts Through Options for 2010, Explains Implications for 2011-2012

(RIVERWOODS, ILL., January 2011) – Pushing it down to the wire, lawmakers provided a short-term reinstatement of the estate tax as part of the 2010 Tax Relief Act, however, they have yet to provide a clear long-term direction, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (

“Many people were certain that the inability of Congress to reach a compromise would result in the sunset of the estate and gift tax changes made by EGTRRA,” said CCH Senior Estate Tax Analyst, Bruno Graziano, JD, MSA. “However, a last minute compromise was reached and, as a result, estates of decedents dying in 2011 and 2012 will have much more liberal rules governing them than would have occurred under the sunset. In addition, the estates of decedents dying in 2010 will have two options for handling the estate tax, which will require executors to run a few different “what if “ scenarios to see which works best.”

Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), between 2001 and 2009, the maximum estate tax rate dropped steadily from 55 percent to 45 percent and the amount of property excluded from the estate tax rose from $675,000 to $3.5 million. In 2010, EGTRRA called for a full repeal of estate taxes before jumping back to the pre-EGTRRA rate of at least 55 percent in 2011, plus a 5-percent surcharge on large estates, with an exclusion amount of $1 million.

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) passed in December 2010 reinstates the estate tax and the generation-skipping transfer (GST) tax for decedents dying and GSTs made after December 31, 2009. The estate tax provides for a maximum rate of 35 percent with a $5 million exclusion amount for estates of individuals dying in 2010 through 2012. The 2010 Tax Relief Act also reunifies the gift and estate taxes, which has not been the case since 2003. Additionally, it provides special considerations for 2010 estates, as well as other provisions for 2011 and beyond.

Estate Tax Planning Issues for 2010 – Choosing One of Two Paths

The 2010 Tax Relief Act gives estates of people dying in 2010 one of two options:

  1. Apply the estate tax based on the new 35-percent top rate and $5 million exclusion amount with stepped-up basis (now the default option); or
  2. Pay no estate tax, but apply the modified carry-over basis rules as they existed under EGTRRA.

According to Graziano, the size of the estate will play a role in deciding the better option.

“Estates of $5 million or less pay no estate tax under either scenario, so they’d be better off taking the default position and receiving a stepped-up basis on assets received from a decedent in order to limit or even eliminate capital gains when they go to sell the assets,” Graziano said.

Likewise, large estates would likely benefit more from the second option where they would owe no estate tax but would potentially have to pay capital gains tax, which at 15 percent generally is still considerably lower than the 35 percent top rate estate tax.

However, there is a group in the middle – estates between $5 million and roughly $8 million – where additional consideration will be required.

“Under EGTRRA, a $1.3 million basis step up is allowed for assets provided to any heir and a $3 million basis step up for assets going to a surviving spouse. Thus, an estate is allowed to increase the basis of property transferred to a surviving spouse by as much as $4.3 million. So, executors of these mid-size estates will have to consider additional factors and run some calculations to determine if applying the new rules or the EGTRRA rule for 2010 is the better option.”

The 2010 Tax Relief Act also restores the GST tax. The GST exemption amount is $5 million with a GST rate of zero, for 2010 only. The annual gift tax exclusion is $13,000, or $26,000 for a married couple electing gift splitting. Because this limit is per donee, an individual could, for example, gift $13,000 to each of her three children in 2010, with $39,000 being excluded from gift taxes; similarly a couple could gift $26,000 to each of their three children, with $78,000 excludable from gift taxes.

There is no gift tax on property given to a spouse who is a U.S. citizen or to a qualified charity. Other exceptions to gift tax that are not subject to the annual limit include qualified tuition or medical expenses paid directly to a medical or educational institution on behalf of a donee.

Estate Tax Planning for 2011-2012, with Another Sunset Looming

As provided under the 2010 Tax Relief Act, for 2011 and 2012, the estate of a surviving spouse may be able to use the unused portion of their dying spouse’s estate tax exclusion. This portability election could exempt up to $10 million from estate tax. For example, if one spouse dies after only using $2 million of his exclusion, his wife would still have her $5 million exclusion as well as the remaining $3 million of her husband’s exclusion. The additional amount would also be available to the surviving spouse for gift tax purposes.

The new estate tax law, however, is scheduled to sunset at the end of 2012. This complicates the impact of the portability provision. For example, what happens if the surviving spouse does not die within the two-year period 2011-2012?

Also for 2011-2012, the gift tax is reunified with the estate tax with a top gift tax rate of 35 percent and an exclusion amount of $5 million. The GST tax is also revised with an exemption amount of $5 million and an applicable rate, which is tied to the maximum estate tax rate, of 35 percent. The $5 million GST exemption and the estate and gift tax exclusion amount are subject to inflation indexing in 2012. For 2011, the annual gift tax exclusion remains the same as it is for 2010: $13,000 or $26,000 for couples using gift splitting.

While the 2010 Tax Relief Act brings some relief, absent congressional intervention, the federal estate, gift and GST tax provisions as amended will sunset at the end of 2012, resulting in lower exclusion amounts and higher rates for 2013.

“As we’ve seen, sunset provisions come and go and although they are often extended, the lack of certainty can be particularly challenging for those trying to manage estate planning,” said Graziano.

Tax Relief Act Takes Wind Out of Many State’s Estate Tax Revenues

Historically, states had followed federal estate tax law. As a result, most states will see no estate tax revenues for 2010. However, had the estate tax been allowed to revert back to pre-EGTRRA rates of 55 percent on estates of $1 million or more as of 2011, many states would have realized a much anticipated windfall. However, now states that want to step up their death taxes in the near term will need to act on their own. Also, as noted above, pursuant to the 2010 Tax Relief Act, if an estate selects the option of applying the federal estate tax based on the new 35-percent top rate and $5 million exclusion amount for the estate of a decedent who died in 2010, a tax may be due to those states that are de-coupled from the changes made by EGTRRA.

“Estate taxes, inheritance taxes and transfer taxes are often politically unfavorable,” said CCH Estate Planning Analyst James C. Walschlager, MA. “However, many states are in dire financial straits and it won’t be surprising if some pick up this issue as their new state legislators come into session.”

Since the passage of EGTRRA, 14 states and the District of Columbia have retained or reinstated their estate taxes, based upon the expired state death tax credit from the federal estate tax law, as a way of holding onto tax revenues. These states are Delaware, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, North Carolina, Oregon, Rhode Island and Vermont. However, Illinois “recoupled” to the federal estate tax law with regard to the estates of persons dying after December 31, 2009, Nebraska eliminated its additional estate tax for persons dying after 2006, and the North Carolina statute provides that its state tax will be imposed only if a federal estate tax return is required. Consequently, these states will not realize estate taxes for 2010. Kansas and Oklahoma have repealed their estate taxes effective for the estates of decedents dying after December 31, 2009. Arizona had previously repealed its estate tax.

In addition, three states – Connecticut, Ohio and Washington – have their own estate tax not tied to EGTRRA.

Eight states also collect an inheritance tax, which is solely a state tax assessed on the portion of an estate received by an individual (versus an estate tax, which is a tax assessed on the entire estate before it is distributed to individual parties). These states are Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee. Assets transferred to a spouse are exempt from the tax, and some states exempt assets transferred to children and close relatives.

The rate and amounts taxable vary considerably. For example, Arizona has no estate tax while New Jersey taxes estates over $675,000 and Ohio taxes estates over $338,333.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business ( is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Wolters Kluwer is a leading global information services and publishing company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands (

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