Congress has just signed the "Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010." This Act will be in effect starting in 2011 and continue to 2012. This new law for deaths occurring in 2011 and 2012 states that every taxpayer will have a $5,000,000 federal estate and gift tax exemption, as well as a 35% top estate and gift tax rate. The $5,000,000 exemption will be indexed for inflation starting in 2012. With no further legislation, beginning in 2013 the exemption will revert back to $1,000,000. In addition, this Act revives the traditional stepped up basis rules for 2011 and 2012 decedents. Under the stepped up basis rules, the income tax basis of property acquired from a decedent at death generally is stepped up (or stepped down) to its value as of the date of decedent’s death (or the alternate valuation date if elected).
Option for 2010 Decedents
The new law also allows 2010 decedents the option to elect (1) no estate tax with a modified carryover basis which would limit the step-up in basis at $1.3 million plus property passing to a spouse would be limited to $3 million, or (2) the $5 million exemption with a full step up in basis.
Illinois Estate Tax Exemption is $2 million for 2011
On January 13, 2011 Illinois Governor Pat Quinn signed Public Act 096-1496, the Taxpayer Accountability and Budget Stabilization Act, into law which, aside from increasing state income taxes on individuals and corporations, reinstated the Illinois estate tax effective January 1, 2011, with a $2,000,000 exemption.
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