Tax, Trusts & Estates Law Monitor : Estate Planning Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Gift Tax & Trust Issues

To the surprise of most estate planning practitioners, the arrival of January 1, 2010 brought with it a federal estate tax repeal. Congress was unable to compromise prior to year end on legislation that would have either maintained the status quo ($3.5 million applicable exclusion amount and a 45% estate tax rate) or implemented new exclusion amounts and/or tax rates.

As a result, the following rules apply in 2010:

• There is no federal estate tax;
• There is no generation-skipping-transfer (“GST”) tax;
• While the gift tax exclusion amount remains fixed at $1 million, the gift tax rate drops to 35%; and
• The basis step-up for inherited assets is eliminated. In its place, beneficiaries will inherit assets with the basis of the decedent (assuming the asset has appreciated). There are two exceptions: (i) there will be a $1.3 million increase in basis to assets passing to beneficiaries on a decedent’s death and (ii) there will be an additional $3 million increase in the basis of assets passing to the decedent’s surviving spouse.

The prevailing belief among estate planners is that Congress will act soon to re-institute the estate tax and make it retroactive to January 1, 2010. If Congress fails to act in 2010, the federal estate tax will be reinstated by law on January 1, 2011 with a $1 million applicable exclusion amount and a $1.2 million GST exclusion.

This is a brief summary of the major estate tax changes as a result of the repeal. We will be blogging frequently on this topic as developments unfold. Please also look for a letter we are mailing out to our clients and friends explaining some of our concerns regarding the repeal, a copy of which will be posted to the blog shortly.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Repeal of the federal estate tax in 2010 – once unthinkable – now appears likely. While the House of Representatives passed a permanent extension of the estate tax in early December, the Senate has been unable to pass a temporary or permanent extension, or anything else related to the estate tax, as Congress rushes toward its holiday recess. It now appears likely that nothing will be passed prior to the end of the year and we will begin 2010 with no federal estate tax.

Congressional leaders have stated that they will resume efforts to pass legislation as soon as Congress returns, so repeal, if it happens, may be short-lived. Some Republicans have stated that they feel they will have better leverage to negotiate if the estate tax is actually repealed. Democrats have stated they would hope to restore the current tax and make it retroactive to January 1.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Although Congress has been focused on health care and two wars, virtually everyone agrees that there will be estate tax legislation in the final 30 days of 2009, and the repeal scheduled for January 1, 2010, is not going to happen.

House Majority Leader Steny Hoyer is expected to bring a bill to the floor this week that would make permanent the 2009 estate tax levels ($3.5 million exemption, 45% rate), though a one-year patch also remains a possibility. This bill does not include other features like reunification, portability and indexing for inflation, due to concerns that these features increase the “cost” of the bill and make it less likely to pass given the limited time for consideration.

The Senate will take up the legislation toward the middle of December. Several lobbying groups feel that there is greater support in the Senate for reunification, portability and indexing.

If some or all of these features are included in the Senate bill, but not the House bill, they will get resolved in conference. Lobbying groups predict it will be down to the wire, with any agreement occurring between December 23 and December 30.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The imminent federal estate tax legislation is on everyone’s minds, and it appears increasingly likely that the legislation this year will be a one-year patch, or a one-year freeze of the 2009 rules (a 45% estate tax rate and a $3.5 million exemption).

According to the Association for Advanced Life Underwriting (“AALU”), an important trade and public affairs group, permanent reform is less likely this year and enactment of a one-year patch is the most likely outcome.

Some of the important considerations in the estate tax legislation debate include:

• Cost. According to congressional analysis, permanent enactment of the 45% estate tax rate and a $3.5 million exemption will “cost” the government $233 billion over 11 years (that is, compared to the 2001 rules which could return in 2011). Given large federal deficits, lawmakers may focus on the estate tax as one area to recover revenues lost through AMT reform, the R&D credit or other law changes.
• Reunification, portability and indexing. Some of the more thought-provoking issues in the estate tax debate include (1) reunification of the gift and estate tax exemptions, (2) the portability of unused exemption amounts between spouses, and (3) indexing the exemption amounts to inflation.
• Limitations on lack of control and lack of marketability discounts. Restrictions on the use of discounts are included in the “Pomeroy” bill, currently the leading bill in the House. It is of course unknown at this time whether this provision will be enacted.

The AALU predicts that the Senate debate on the estate tax will extend to mid or late December. We will continue to post updates as new issues arise regarding this legislation.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link