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"As long as I have any choice, I will stay only in a country where political liberty, toleration, and equality of all citizens before the law are the rule." - Albert Einstein

Estate Tax Update

Posted: December 9, 2010 Filed under: Law-Related News, Legislation, Uncategorized

Followers of the estate tax, also known as the “death tax,” will recall that, in 2001, Congress voted to gradually raise the estate tax exemption (the value of an estate exempt from taxation) until 2010, when the estate tax would end. Before 2010, many estate-tax watchers believed that Congress step in before the full expiration of the estate tax and reinstate it. But that did not happen.

Consequently, like the Bush administration’s income tax cuts, the reduction in the estate tax was on course to expire at the end of 2010. In other words, 2010 was shaping up to be a year of no estate taxes followed by reinstatement of the estate tax on January 1, 2011, at levels that could have imposed taxes of up to 55% on estates valued at more than $1 million. By comparison, the tax rate in 2009 topped out at 45% for estates worth more than $3.5 million.

This past Monday, as part of his announced compromise with congressional Republicans, President Obama announced a planned 35 percent estate tax and a $5 million exemption (he had previously advocated for return to the 2009 rate and exemption). President Obama’s mere announcement of the compromise does not carry the force of law, so we will have to stay tuned to see what actually becomes the law. Also, other important details remain to be worked out, such as:

Whether the estate tax will be retroactive to January 1, 2010, or will begin January 1, 2011;

Whether the lifetime gift tax exclusion and estate tax exemption amounts will be adjusted for inflation.

Whether surviving spouses will be allowed to use their deceased spouse’s unused portion of the lifetime gift tax exclusion amount; and

Whether the lifetime gift tax exclusion amount will be reunified with the estate tax exemption amount as it was prior to 2001.

Stay tuned. This post does not represent the final word on the estate tax changes – good or bad – that lie ahead.

Admitted: Florida, Kansas, New Mexico (inactive)