What Probate Attorneys and Personal Representatives Need to Know About the New Tax Law

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312 was signed into law by President Obama on December 17, 2010 (2010 Tax Relief Act).  The 2010 Tax Relief Act made sweeping (but possibly temporary) changes to the Federal gift, estate, generation-skipping transfer tax laws.

The 2010 Tax Relief Act was enacted in a flurry of partisan controversy as Congress scrambled to agree on a relief package before the end of 2010.  Had Congress not acted, the estate tax would have been reinstated in 2011 with a maximum exclusion amount of $1 million and tax rates of up to 55 percent.  This meant that everyone who had more than $1 million in assets stood to lose up to have of it to the IRS at death.  Neither side of the aisle was happy with this prospect, but agreeing on an alternative was a challenge.

Congress was finally able to reach a compromise, albeit one that is temporary.  Unless Congress acts before the end of 2012, the 2010 Tax Relief Act will expire at the end of that year.  But for the next two years, 2010 Tax Relief Act should provide at least some stability to the gift and estate tax planning environment.

Since the 2010 Tax Relief Act became law, the discussion has tended to focus on the ways in which the new law will affect estate planning in the near future.  Under the new gift estate tax provisions, the estate tax rate is set at 35 percent with a $5 million exemption for individuals.  The same exemption is available for gifts.  The relief will be in place for 2 years.  These and other changes will be very important from an estate planning perspective.

But there are a number of changes that are important from a probate and estate administration standpoint.  Utilization of some of the gift and estate tax benefits of the new law require action on the part of personal representatives.  Probate attorneys and personal representatives must look out for these opportunities or risk a lawsuit for failure to do so.

Over the next few days, I plan to take a look at the responsibilities that the new law will place on personal representatives and their probate attorneys.  As we’ll see, failure to take these new responsibilities into account could have disastrous financial consequences.