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UNDERWRITING BULLETIN – No. 2011 - RC- 06

 TO:                 All Offices and Operations FROM:            Office of the Chief Underwriting Counsel DATE:                        April 25, 2011 
SUBJECT:     Federal Estate Tax 

 As you know, the Federal Estate Tax had been effectively repealed for the year 2010. It was set to revert to the 2001 exemption limits in 2011. Obviously everyone thought Congress would get around to changing that before the sunset date arrived. They didn’t do that until December 17, 2010 when they passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act (the Tax Relief Act of 2010).The new law amends the Estate, Gift and GST (Generation Skipping Trusts) provisions of the Tax Code and it has a sunset provision that requires it to end in 2013. For title people, the important aspect is that the new exemption limits are RETROACTIVE for all estates opened in 2010, in the sense that they have established a tax liability for deaths in 2010 that did not have any Federal Estate Tax liability prior to passing this act. This means that an estate could have been opened and closed in 2010 and, if large enough, it may have to be reopened to address the tax liability issues. It does allow 2010 estates to opt out of Estate Tax liability and chose to follow the Carry-over basis with possible capital gains effect on the tax liability of the estate or heirs. YOU MUST ANALYZE ANY CHAIN OF TITLE WHICH INCLUDES A DEATH IN 2010 WITH RESPECT TO THIS NEW LIABILITY. The important numbers for us are the EXEMPTION limits, which are set at $5,000,000 (5 million dollars) for 2010, 2011, and 2012. The Taxable rate is 35% for all years. Since certain estate plans were difficult to construe if the death occurred in 2010 before this law went into effect and there appeared to be no tax due, some states passed legislation to clarify how to calculate certain amounts that referred to Federal limits (that didn’t exist for the 51 weeks of 2010.) If you are in one of those states, make sure you take into consideration the effect of any such law when determining the liability for state or federal estate or death taxes. The Gift Tax exemption remains at $1,000,000 for 2010. For 2011 and 2012 it becomes unified again with the Estate Tax at the $5,000,000 unified limit.  The following chart represents the current limits, including 2013 if it is allowed to expire or sunset again: 

                                                                

                                                               2009                       2010                       2011                       2012                       2013

Federal Gift Tax                                   $1 million              $1 million              $5million               $5million                $1 million  

Exemption Estate Tax                       $3.5 mill               $5 million              $5 million              $5million                 $1 million 

Exemption Unified Gift & Estate           No                           No                           Yes                         Yes                         No 

State Death Tax Credit                            No                           No                           No                           No                           Yes 

You should follow your state guidelines, incorporating these new limits, to determine the appropriateness of raising an exception for possible estate taxes for 2010 and beyond.

 
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