Estate Tax laws may be changing again

In Washington, even in the midst of countless health care bill discussions, Congress is finally realizing that it may want to allocate some time to discussing estate tax laws. Over the last month, the House Ways and Means Committee has been discussing the topic of estate tax more regularly.

As is stands, the federal estate tax exemption is $3.5 million per person. If no changes are made to existing law, the estate tax will disappear in 2010 and reappear in 2011 with an exemption of $1 million. I don't think anyone is seriously thinking Congress will let current law simply take its course. Until recently, it seemed that Congress would impose a one year extension of the current $3.5 million exemption. However, new bi-partisan developments indicate that we may see new legislation that permanently fixes the existing estate tax enigma.

On October 22, 2009, House Ways and Means Committee members from Nevada, Texas, Alabama, and California introduced H.R. 3905 ("Estate Tax Relief Act of 2009"). This new proposal would keep the current $3.5 million exemption, but would increase the exemption by $150,000 and decrease the tax rate by 1% each year until 2019. Currently, the federal estate tax rate is 45% (i.e., for each dollar a person's estate exceeds the estate tax exemption, the estate is taxed $0.45). Under this proposal, in year 2019, the estate tax exemption would be $5 million and the tax rate would be reduced to 35%. The new proposal would also make the 2001 changes to the allocation of the Generation Skipping Transfer Tax exemption permanent.

H.R. 3905 is aggressive and likely will not be embraced by a full democratic House. Fortunately, Congress now seems to realize that the current state of estate tax laws cannot continue much longer. I still believe we will see a change to existing law passed by December 31, 2009. Unfortunately, due to Congress' obsession with health care discussions, we may only see a patch that continues the current exemption of $3.5 million into 2010.

By: Michael W. Vogel