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The Tax Prophet Newsletter   Issue #95 March, 2011


In This Issue:
2010 Law
Maximize Gifts
Traditional Estate Planning

Estate and Gift Tax Demise?
Part 2 of 3

2010 Law

The estate tax was eliminated in 2010; however, many estates were adversely impacted by the 2010 law.

The 2010 law substituted a "carry-over" basis tax regime, which meant that beneficiaries received the same asset basis held by the decedent. Thus, untaxed asset appreciation was preserved and upon sale, beneficiaries would pay federal and state income taxes on any gains.

Now, estates affected by the 2010 law may elect to use the new law, thereby avoiding the carry-over basis rules. Estates with appreciated assets are prime candidates for the election, because any untaxed appreciation is eliminated under the traditional concept of revaluing assets at fair market prices upon death.


Executors who want the new law to apply to 2010 estates or take advantage of the portability of unused exemptions will need to make timely elections to trigger these provisions.

Maximize Gifts

To leverage the new gift-tax exemptions, very large estates should consider the traditional estate planning concepts of fractional interest discounts through family limited partnerships or similar entities.

NOTE: For many estates below $10.0 million, using these conventional planning strategies may have negative income tax consequences - if so, then consider unwinding these entities.

Traditional Estate Planning

Traditional three-trust planning may still be considered in case the new law expires. Although most estate planners believe the new law will survive, there is always the possibility that it will not.

To play it safe, amend the existing three-trust estate plan to take into account the new law, but leave it in place as a backup.

Remember, current estate plans contain distribution provisions for the assets, regardless of the changes in tax law.

End of Part 2

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All contents copyright 2011 Robert L. Sommers, attorney-at-law. All rights reserved. This newsletter provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet is a registered trademark of Robert L. Sommers.