Chicago, Illinois
120 South Riverside Plaza, Suite 1200
Chicago, IL 60606
312.876.7100 phone • 312.876.0288 fax
Hoffman Estates, Illinois
2800 West Higgins Road, Suite 425
Hoffman Estates, IL 60169
847.843.2900 phone • 847.843.3355 fax
Springfield, Illinois
808 South Second Street
Springfield, Illinois 62704
217.789.7959 phone • 312.876.6215 fax
Boca Raton, Florida
433 Plaza Real, Suite 275
Boca Raton, FL 33432
954.713.7600 phone • 954.713.7700 fax
Coral Gables, Florida
201 Alhambra Circle, Suite 601
(SunTrust Plaza)
Coral Gables, Florida 33134
305.357.1001 phone • 305.357.1002 fax
Fort Lauderdale, Florida
200 East Las Olas Boulevard, Suite 1700
Fort Lauderdale, Florida 33301
954.713.7600 phone • 954.713.7700 fax
Miami, Florida
200 South Biscayne Boulevard, Suite 3600
Miami, FL 33131
305.374.3330 phone • 305.374.4744 fax
Tampa, Florida
Two Harbour Place
302 Knights Run Avenue, Suite 1100
Tampa, Florida 33602
813.254.1400 phone • 813.254.5324 fax
West Palm Beach, Florida
515 North Flagler Drive, Suite 600
West Palm Beach, FL 33401
561.833.9800 phone • 561.655.5551 fax
www.arnstein.com
© 2010 ARNSTEIN & LEHR LLP
January 2010
TEMPORARY ESTATE TAX REPEAL:
WHAT HAPPENS NOW?
We arrive on January 1, 2010 at a place very few people thought possible. As of
now, the federal estate and generation skipping transfer (“GST”) taxes are repealed
for the year 2010. Congress adjourned for 2009 without “fixing” the estate (or as
some like to say, “death”) tax rules. Since the current estate tax rules were enacted in
2001, the possibility of arriving at 2010 without an estate tax (albeit only temporar-
ily) was viewed as unlikely as lightning striking the same place twice. Let’s see how
we got here (and perhaps more importantly, what it may mean for many individuals).
The current estate tax rules were enacted in 2001. These rules provided (1) an increas-
ing federal estate (and GST) tax exemption ($3.5 million for 2009), (2) a $1.0 million
exemption for lifetime gifts, and (3) a maximum gift and estate tax rate on “taxable”
estates and gifts of 45%. Some states have their own estate tax – others do not. Gen-
erally, states with their own estate tax impose the state tax “on top” of the federal tax.
The rules now in effect change dramatically in 2010. On January 1, 2010
– for a one year period – there will be no federal estate or GST tax. The gift
tax exemption will remain at $1.0 million for 2010, but with gift tax rates fall-
ing to 35%. In addition, the current rules allowing a “step up” (increase) in the
income tax basis of a decedent’s assets is eliminated for 2010. Instead, sub-
ject to certain limited exceptions, the income tax basis of a decedent’s assets
will “carry over” to the recipient of the asset (thus potentially increasing capital
gains tax when the decedent’s estate or the recipient sells the appreciated asset).
Beginning on January 1, 2011, however, the rules change again – and
even more dramatically. The estate and GST exemptions fall to $1.0 mil-
lion and the maximum estate and GST tax rates increase to 55%. But
the “carryover basis” rule will no longer apply. In effect, the tax rules go
back to those in effect in 2001 (before the current rules were enacted).
Congress has failed to bring stability and certainty to the estate tax rules. Most
Congressional efforts to “fix” the estate tax rules have focused on making the 2009
tax rules permanent or temporarily extending the 2009 rules through 2011. These
efforts have, at least for now, proven unsuccessful. Nonetheless, it is very possible
that Congress will enact legislation in 2010 that overturns the 2010 estate and GST tax repeal, as well
as the other one-year tax law changes taking effect in 2010. What is less certain is when any “remedial”
estate tax legislation will be enacted – and whether the law will apply retroactively to January 1, 2010.

What do these changes mean for you? First, with the uncertainty in the tax rules brought by 2010
also come some possible opportunities. There may be different planning strategies available in 2010
as a result of these unique circumstances. However, there can be no “one size fits all” approach due
to the many variables that may be involved. Second, most estate plans should be reviewed in 2010 to
assure they continue to work as originally intended. For example, if the estate tax is eliminated, many
estate plan documents contain formulas which may automatically “shift” assets away from a surviv-
ing spouse to descendants or other family members. Documents, as well as factual circumstances,
need to be reviewed to assure any unintended consequences can be mitigated. Third, consideration
needs to be given to whether it is appropriate to try to address what the consequences may be if a
person dies in 2010, during the “gap” period (i.e., prior to any remedial legislation being enacted),
depending on whether or not such legislation may be applied retroactively or only prospectively.

The tax law changes occurring in 2010 are unique (and may only be temporary). What happens next
is uncertain. While it is likely Congress will overturn the 2010 estate and GST tax repeal, how and
when the tax rules get “fixed” (and what happens in the interim) is less certain. In the meantime, we
strongly encourage you to contact us to discuss how these changes may impact your estate plan.

TAX NOTICE:

Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice contained in
this written or electronic communication, including any attachments or enclosures, is not intended or
written to be used and it cannot be used by any person or entity for the purpose of (i) avoiding any
tax penalties that may be imposed by the Internal Revenue Service or any other U.S. Federal taxing
authority or agency or (ii) promoting, marketing or recommending to another party any transaction
or matter addressed herein.