General Overview of 2011 Tax Changes

The “Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010” (TRA) was signed into law on December 17, 2010.  The TRA applies to the years 2011 and 2012.  This Act was passed to address the expiration of two major tax bills[1].  These two tax-cut bills expired at the end of 2010.  The TRA extends certain provisions of these bills and also provides amendments to the tax system.

2011 Gift Tax

Starting in 2011, the gift tax exemption amount will increase from $1 million to $5 million.  The exemption for couples is $10 million.[2] Gift tax is again unified with the estate tax.  For 2011, the “unified” applicable exemption amount is $5 million per person, and in 2012 this amount is subject to being indexed for inflation.”[3] The tax rate is set at 35%.[4] The annual exclusion for tax-free gifts remains $13,000 per donor.[5] A donor may make an unlimited number of $13,000 gifts as long as they are to different individuals.[6]

2011 Estate Tax

Under the TRA, the “applicable credit amount is the amount of tax with respect to an applicable exclusion amount of $5 million.”[7] Starting in 2012, the applicable exclusion amount will be indexed for inflation, with adjustments rounded to the nearest $10,000.  The maximum rate of estate tax is 35%.[8]

2011 Portability

Under the TRA, the new tax structure will “allow a decedent’s estate or a donor to tax advantage of the applicable exclusion amount of the decedent’s or donor’s previously deceased spouse.  This ‘portability’ concept is intended to prevent families from incurring gift and estate tax that could have been avoided through planning prior to the death of the predeceased spouse.”[9] Under the new tax law, “when computing the applicable exclusion amount for a donor’s or a decedent’s estate, the [deceased spousal unused election amount] is added to the donor’s or decedent’s [basic exclusion amount].”[10]

For more information about 2011 estate planning, please contact our experience attorneys.  Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may include legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

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[1] Both the “Economic Growth and Tax Relief Reconciliation Act of 2001” (EGTRRA) and the “Jobs and Growth Tax Relief Reconciliation Act of 2003” (JGTRRA) were set to expire at the end of 2010.  [2] U.S. Senate Committee on Finance, “Summary of the Reid Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” p. 4.  The ABA materials did not state the couple exclusion as $10 million, but it makes sense if it is $5 million per person.  [3] ABA Summary of Tax Relief Act 2010, p. 6.  [4] Id.  [5] “Tax Changes for 2011:  A Checklist,”  The Wall Street Journal, Laura Saunders.  [6] Id.  [7] ABA Summary of Tax Relief Act 2010, p.9.  [8] Id.  [9] ABA Summary of Tax Relief Act 2010, p. 11.  [10] Id.