Estate planning has been interesting this year. 2010 has been a year without estate tax. That’s right, the estate tax, which has been around since 1916, doesn’t exist today. If you or a family member pass away in 2010, the respective estates won’t have to pay estate tax.
How could this be? A little know congressional rule that requires any law that affects revenue for more than ten years to be passed by 3/5 of the Senate, influenced legislation called the EGTRRA. The EGTRRA, or Economic Growth Tax Reconciliation Relief Act, sought to repeal the estate tax, but to get around the rule it was written to repeal itself, or “sunset”, on the final year. This is the final year of the EGTRRA and next year it will sunset. That means next year the estate tax will come back at 2001 levels. All assets over 1 million will be taxed at 55%, unless Congress acts.
So what will Congress two? Probably one of the following:
- Nothing. This is what I think will happen. The Democrats are most likely still going to control the Senate after the election and with the election over, they have little reason to pass new legislation to lower taxes. I think they will let the estate tax come back at 55% on all assets over 1 million.
- Seek to apply tax on estates for this year. This is unlikely. The first estate tax returns filed under the current environment without estate taxes have been filed. It is unlikely that retroactively applying tax on these estates would be found to be constitutional, and any law that sought to do so would definitely be challenged. I don’t think Congress will attempt to apply estate taxes to estates filing this year.
- Pass a new law raising the exemption. This is perhaps the most reasonable thing for Congress to do. Even if balancing the budget requires estate tax, the exemption should be higher than the unadjusted 2001 amount. It should at least be adjusted for inflation. The problem is raising the exemption would require Congress to act and there isn’t a lot of time for them to do so.
