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On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (the “TRA”) into law. The TRA extends a number of the Bush tax cuts and benefits under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”), and the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), and also introduces additional cuts. Effective for only two years, the TRA is a temporary fix to the uncertainties raised by the sunset of the relevant provisions of these acts (now scheduled to occur after December 31, 2012).

Following is a summary and statutory analysis of the TRA provisions that most affect estate planning.

SELECT ESTATE, GIFT AND GENERATION SKIPPING TAX PROVISIONS

(1) Federal Estate, GST and Gift Tax Exemption Amounts. The TRA increases the individual exemption amounts from federal estate, GST and gift taxes to $5.0 million. The $5.0 million estate and GST tax exemption amounts are retroactive to January 1, 2010 and remain in effect through 2012. The $5.0 million gift tax exemption is effective as of January 1, 2011 and also remains in effect through 2012. As a result, the gift tax exemption amount remains at $1.0 million for 2010, but beginning January 1, 2011, the estate tax, GST tax and gift tax exemption amounts are unified for the first time ever and through 2012. Unification means not only that the taxes share the same rate and exemption amount, but also that an individual may use any portion of his or her $5 million exemption amount to make gifts (including generation skipping gifts) during life. Any amount not used during life will be available at death.

(2) Federal Estate, GST, and Gift Tax Rates. The TRA effectively unifies the federal estate, GST and gift tax rates and in each case causes the top marginal rate to be 35% from January 1, 2010 through 2012.

(3) Portability of Estate Tax Exemption Amount. For the first time ever, a surviving spouse is allowed to receive the unused portion of a decedent spouse’s federal estate tax exemption. This concept, called “portability”, permits a surviving spouse’s estate tax exemption amount to be increased by the amount unused by the deceased spouse. The estate of the first spouse to die must file a timely estate tax return in order to elect portability and preserve the unused exemption, even if the estate would not otherwise be required to file. Portability is effective with respect to deaths in 2011 and 2012. Portability is not cumulative in that it applies only to the surviving spouse’s last deceased spouse.

(4) Deduction for State Death Taxes. A federal estate tax deduction for state death taxes actually paid remains in effect through 2012.

(5) Basis Step-Up. Property passing as a result of a death occurring on or after January 1, 2010 through 2012 receives a step-up in basis.

(6) Change in Gift Tax Calculation Method. The gift tax calculation under Code § 2505(a) includes subtracting the amount of the unified credit available. The amount available is calculated by subtracting the amount of credit already used with respect to prior gifts.

(7) Special Provisions for Transfers Occurring in 2010. The above notwithstanding, the TRA includes special provisions with respect to generation skipping transfers occurring in 2010 and the estates of decedents who died in 2010. These provisions ascribe a 0% GST tax rate to generation skipping transfers made in 2010, permit the personal representative of the estate of a decedent who died in 2010 to choose between the TRA’s 35% estate tax/step-up basis provisions and EGTRRA’s zero-estate tax/carry-over basis provisions, and extend the due dates for filing certain gift or estate tax returns, paying estate or GST tax, or making a qualified disclaimer to no earlier than nine months after the TRA’s date of enactment.

SELECT INCOME TAX PROVISIONS

(8) Charitable Distributions from an IRA. Through 2012, individuals who are 70½ years of age or older may continue to make qualified charitable distributions from an IRA. An individual may direct up to $100,000 of his or her required minimum distribution from the IRA directly to a public charity. The amount directed will not be included in the individual’s taxable income.

(9) Ordinary Income Tax Rate. The top federal marginal ordinary income tax rate will remain at 35% through 2012.

(10) Capital Gains & Dividend Income Tax Rate. The top federal marginal tax rate for long-term capital gains and qualified dividends will remain at 15% through 2012.