Estate Tax Repeal Law Update

Tax Planning

The federal estate tax lapsed (was “repealed”) on January 1, 2010. But under current law, it will automatically rise from the ashes on January 1, 2011 and, unless Congress intervene, only $1 million per estate will be exempt from a stiff estate tax in upwards of 55%. That compares with a $3.5 million exemption and a 45% rate in 2009. However, Congress has been promising to make this “repeal” since the law was enacted back in 2001.

So what are the prospects that the law will be made permanent? Near non-existent. At best, we can hope for a reinstatement of the estate tax at a reduce rate and with a higher estate exemption limit. There are a number of pending bills most of which calling for the reinstatement of the federal estate tax, and with estate exemptions ranging from $1 million to $3.5 million.

The latest comments made in the press seem to indicate that Congress will not address the estate tax law until after the November election. Reports indicate that certain members of Congress want to wait to address the issue of all taxes until after the Debt Commission issues its report in early December. That would mean they would not have time to do anything before the session of Congress ends in December.

Senate Finance Chair Baucus says he will address the Bush tax cuts until the Senate deals with the “extenders”. He means the bill that would extend into 2010 certain tax provisions that expired at the end of 2009 (the itemized deduction for sales taxes, the additional standard deduction for real property taxes, and deductions for tuition and teacher expenses).

Senate Majority Leader Reid commented about dealing with the Bush tax cuts and by implication the estate tax:

“Maybe if they (the Republicans) stop stalling everything that comes to the floor we might be able to get to that stuff. We’ll get to that when we get through unemployment insurance, Wall Street reform, and a few other things.” Chaos continues.

Thus, there is much uncertainty. However, you can be certain of this, if Congress continues to fail to act then the estate tax comes back and the estate exemption will revert to $1 million.

The prospect of a $1 million exemption means many more families need to plan for the federal tax. Tally up the value of a house, life insurance (if you are foolish enough to die owning it yourself), retirement and other accounts, and you may be surprised to find yours is one of them. To learn more about the planning you can do to protect yourself, visit the Estate Planning section of our website.

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