The State of the Estate Tax Reform

Many clients have been asking about the status of the estate tax.  Regrettably, there is nothing new to report on this issue for federal purposes.  Presently, there is no federal tax on the estates of individuals dying in 2010.  Although many believed that Congress would reinstate the tax on estates in 2010, that has not happened, and the more time that passes the less likely it is that it will happen.  Meanwhile, some states whose estate tax laws were tied to the federal law grew tired of waiting for Congress to act and have passed legislation establishing their own estate tax rules.

Under present law, the federal estate tax will return in 2011, but with only $1 million of the estate’s value exempted from tax (down from $3.5 million in 2009) and a top tax rate of 55% (up from 45% in 2009).  Thus, without Congressional action, there will be a substantial increase in the number of estates subject to tax and the amount of estate tax that will be collected by Uncle Sam.  However, everyone is expecting Congress to step in and increase the exemption for 2011 and later years.  There has been talk of setting the exemption amount at between $3.5 and $5 million and capping the estate tax rate at somewhere between 35% and 45%.

Congressional committee members have indicated that they are nearing a resolution, but are still looking for revenue offsets to abide by the pay-as-you-go rules.  Watch for further developments in this area.

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