Estate Tax Update

For those of you keeping abreast of the Estate Tax saga, this brief post provides a few links to information regarding the impending lapse of the Estate Tax, which appears will come to fruition. Some lawmakers, however, are determined to make sure that the expiration will not last for long. Until new legislation is enacted, you need to be aware of what will happen regarding the Estate Tax and Generation-Skipping Transfer Tax.

As we approach the New Year, the Estate-Tax-Expiration Watch will continue with great interest. As is typical of government, however, there is a high probability that no one will actually be allowed to leave this world without succumbing to some type of Estate Tax, as there is bound to be serious discussion on retroactivity of the new legislation. Stay tuned. . .

House Passes Amendment To Estate Tax Law

Yesterday, the U.S. House passed H.R. 4154 by a vote of 225-200. No republicans voted for this bill. As I expected would happen before year end, Congress is pushing for a continuance of the current $3.5 million federal estate tax exemption. H.R. 4154 extends the current exemption of $3.5 million per person indefinitely. If this bill becomes law, the current elimination of estate tax in 2010 and resurfacing of a $1 million estate tax exemption in 2011 will not occur.

For estates that exceed $3.5 million, the estate tax rate will be 45%. This means that for every dollar a deceased person's estate exceeds $3.5 million, the estate will owe $0.45 to the IRS. Also, H.R. 4145 does not include a provision related to portability of estate tax exemptions between spouses. This means that lawyers must continue to use flexible trust plans that create bypass trusts upon the first spouse's death to utilize both spouses' exemptions.

As we approach the reality of no estate tax in 2010, Congress is nearly certain to pass this legislation. I suspect the U.S. Senate will take up this bill quickly and send a final version to President Obama for signature. During his campaign, President Obama spoke of his support for a $3.5 million estate tax exemption and this bill aligns itself perfectly with his position.

By Michael W. Vogel

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

Estate Tax Update

As 2010 approaches, changes to the current estate tax will undoubtedly increase. It appears that both Republicans and Democrats are close with the proposals working through the legislature (other than the push to permanently repeal the estate tax). However, from this article, the debate over health care is monopolizing the lawmakers' time.