Late in the evening of December 16th, the House of Representatives approved the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 (the "2010 Tax Relief Act"). As the Senate had passed the 2010 Tax Relief Act earlier in the week, when the President signs the bill, it will become the latest addition to the Internal Revenue Code. As we reported last week, the 2010 Tax Relief Act extends the Bush-era tax cuts for two years. The Act also reinstates the estate tax and reunifies it with the gift tax, instituting a $5 million exemption that can be used either during lifetime or at death. The generation-skipping transfer ("GST") tax is also reinstated, with an exemption of $5 million. Beginning in 2011, the tax rate for gift, estate and GST taxes will be 35%. Because the estate and gift tax rates will both be 35% in 2011, plans for year-end gifts in 2010 may not be as compelling in some circumstances as we originally anticipated. However, the 2010 Tax Relief Act has provided us with one very significant year-end planning opportunity - large gifts can be made to grandchildren (either outright or in trust, provided the trust is drafted properly) without using any of the donor's GST exemption. This was not the case under prior law and will not be available after December 31. This increase in the gift tax exemption from $1 million to $5 million was not expected by estate planners and is probably one of the most significant changes to prior law. The five-fold increase in the gift tax exemption will provide significant planning opportunities. Clients can consider making new gifts in 2011 by transferring assets or simply by forgiving outstanding loans.