The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has some special provisions for the "death" tax, also known as the estate tax.
The staff of the Joint Committee on Taxation published a technical explanation. The provision for the death tax starts on page 50. It says, in part: "the estate tax applicable exclusion amount is $5 million ... indexed for inflation for decedents dying in calendar years after 2010 ... the maximum estate tax rate is 35 percent."
There is a way to get this set of rules for 2010 also.
That means a single person can die in 2011 (and after) and leave up to $5 million in fair market value of assets with no death tax (assuming no large taxable gifts were made before death).
Wait, there's more. The new law has a portability provision for any unused exemption between spouses.
The technical explanation includes an example to illustrate the new rules.
If a husband dies in 2011 (or later) leaving $3 million in assets, if an election is made on a timely filed estate tax return (including extensions of time to file), there is no death tax to be paid. Further, the $2 million of his exclusion he did not use is added to the surviving spouse exclusion. She can now leave $7 million with no death tax - her $5 million exclusion plus $2 million of the unused portion of his exclusion.
That's the case whether or not they had the standard A/B Trust (which has other names also) that separates out the husband's property and sets up a special irrevocable "fixed" trust for his applicable exclusion.
If the surviving spouse remarries and husband No. 2 dies leaving $4 million in assets, he has no death tax. But the surviving spouse exclusion is now $6 million (her $5 million plus the $1 million of unused portion of husband No. 2's exclusion) if a timely election is done on husband No. 2's estate tax return.
That is now enough death tax relief so only a very few folks dying in 2011 and later will have to pay a death tax. At least that is the situation until 2013, unless Congress decides to make this a permanent change.
There are special other rules on gift tax and generation skipping transfer tax also.
The new law is still being studied and interpreted, but that seems to be the basic answer for death tax, until it gets changed yet again.
Did you hear "The early bird may get the worm, but the second mouse gets the cheese"?
• John Bullis is a certified public accountant, personal financial specialist and certified senior advisor serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.
