There currently is no Federal or state estate tax or generation skipping tax. The gift tax is still in effect. Whether or not the estate and generation skipping taxes will be reinstated this year is not known. Many people expect that they will be reinstated, but what will happen is not known. What the rates and exemptions will be if the taxes are reinstated is also not known.

If nothing is changed, in 2011 the old estate tax law comes back into effect with a $1,000,000 tax free amount (as opposed to $3,500,000 on December 31, 2009) and the higher tax rates in effect when the tax free amount was $1,000,000 (55% maximum).  There will be no generation skipping tax.

In the meantime we have carryover basis. When someone takes an appreciated asset from a decedent they realize gain or loss when they sell the asset.  The gain or loss is normally determined by deducting the basis of the asset (usually its cost with certain adjustments) from the amount of proceeds realized on sale. But when an asset was acquired from a decedent, basis was defined differently.  Up until December 31, 2009 the basis used to compute gain or loss was the date of death value. This has been changed. Currently it is the decedent's basis (cost) or the value on the date of death - whichever is less. There are certain exceptions. For each estate the basis can be increased by up to $1,300,000 of estate assets. In addition property passing to the surviving spouse qualifies for a basis increase of up to $3,000,000.

Many estate plans give the maximum tax free amount to a family trust in which the surviving spouse has restricted or no rights. All the rest goes to a marital trust benefitting the surviving spouse. Currently, under these plans, the whole trust estate will go to the family trust and nothing will go to the marital trust.

Illinois Wills Lawyer Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: donthompsonlaw@sbcglobal.net