The time for change in federal estate tax laws is rapidly approaching. The size of the estate tax exemption may be a hot topic of discussion in Congress. This is an issue of importance to baby boomers who may be dealing with the estates of older relatives or updating an estate plan of their own. (You do have an estate plan don’t you?)
Time is Now for New Estate Tax Legislation
I suppose this interesting timing issue is why the word “certainty” is part of the name of the new law. A Democrat Congress certainly does not want wealthy people to die in 2010 without sending a chunk of their estate to Washington.
Lawyers who specialize in estate planning have a love-hate relationship with Congress on the current state of the law. They love the business created by the uncertainty. They hate the risks caused by the uncertainty.
Summary of Proposed Changes in Existing Estate Tax Law
These are the key exemption provisions of the new estate tax law:
- The estate-tax exemption of $3.5 million for an individual and $7 million for a married couple – in effect for 2009 – would be made permanent. If no changes are made, the exemption would revert in 2011 to only $1 million for an individual.
- The gift-tax exemption of $1 million and the $3.5 million generation-skipping transfer-tax exemption also would be made permanent. (A married couple would receive double these amounts in exemptions.)
- The new law would implement inflation indexing of the exemptions for the the estate, generation-skipping, and gift taxes. This indexing would be in $10,000 increments, starting in 2011.
- The highest estate tax rate would remain at 45%. Before the Bush tax cuts, the maximum rate was 55%. This is what the rate will be (with a 5% surcharge on very large estates) if no changes in the law are made.
Also helpful: The proposed law would make the estate tax exemption “portable.” By this I mean that it would allow a surviving spouse to take advantage of the unused portion of the estate-tax exemption of a deceased spouse. If we assume that each spouse has a $3.5 million exemption, any unused portion of the $3.5 million exemption from the first to die could be portable (by election of the surviving spouse) and later used by the surviving spouse in addition to his or her own $3.5 million exemption. This benefits the couple’s children for example.
Final Comments on Changes in the Estate Tax Laws
A logical follower of national politics and tax policy would think that the Taxpayer Certainty and Relief Act of 2009″ has an excellent chance of becoming law. I say this because the Act was introduced by Max Baucus, the Democrat Chair of the Senate Finance Committee. He has been pushing for legislative certainty in the estate tax law for a long time. I think this time he will get it.
To track the status of the new estate tax law, follow the proceedings of the Senate Finance Committee. And please don’t die in 2010 unless absolutely necessary.
Photo credit: Ozyman