In an extraordinary turn of events, the U.S. Congress in 2009 failed to preserve the federal estate and generation-skipping transfer (GST) taxes in 2010, with the result that the federal estate, gift, and GST taxes have changed greatly from what they were in 2009.
Estate and GST taxes have been completely repealed for one year, while the gift tax remains in place with a $1 million exemption and 35% maximum rate. Unless Congress acts during 2010, estate, gift, and GST taxes as they existed before 2002 will automatically be reinstated in 2011 with a 55% rate (with a 5% surcharge on estates or cumulative gifts between $10 million and $17.184 million); a $1 million exemption for lifetime and testamentary transfers; and a $1 million exemption from GST tax (as indexed for inflation since 1999).
Because of this changed and unpredictable environment, U.S. clients resident in the UK or Europe, and their advisors, now face significant uncertainty in planning the gratuitous transfer of assets given the current state of transfer tax exemptions and rates. Non-US spouses whose US spouses died before 1 January 2010 and who have QDOTs are particularly affected on distributions received during their lifetime after 31 December 2009 and before 1 January 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.