The estate tax and the step-up basis regime for inherited assets were repealed for 2010.

However, unless Congress takes action before December 31, 2010, both will be reinstated in 2011 and create a similar structure as before the enactment of the 2001 tax cuts.

Consequently, the highest rate for estate tax will top at 55% with an estate tax exemption of US$1,000,000 per individual.

In place of the step-up basis, the carryover basis rules will in general apply, requiring a beneficiary who inherits an asset to use the same basis as reported by the decedent. However, there will still be an allowance for some transfers to qualify for a step-up in basis to fair market value.

The gift tax regime remains in place with a lifetime gift tax exemption of US$1,000,000 and a flat tax rate of 35% on taxable gifts.