Most estate planning practitioners presumed, myself included, that the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which repeals the death tax, would never make it to 2010.
Although the House passed new estate tax legislation in December of 2009, with legislation on its agenda more pressing than the estate tax, including the economy and health care, the Senate failed to make the estate tax legislation a priority and thus the estate tax expired on January 1, 2010.
This failure has left estate planning practitioners and their clients in a state of flux and possibly confusion. As it stands right now 2010 is the first year since 1916 where a wealthy American can die without paying any estate tax.
Although we cannot predict what Congress will do with regard to the estate tax laws, I believe one of the following three things will happen:
1. The House and Senate may work together and establish comprehensive changes to the estate tax laws, solidifying the estate tax rules for the foreseeable future. Although there have been many plans proposed by both political parties, the likelihood of the House and Senate agreeing on one during the next nine months may be unrealistic.
2. There have also been rumors that the House and Senate may attempt to pass a two year “patch” of these tax rules, which would reinstate the old 2009 estate tax laws. This reinstatement would bring back the estate tax, but allow citizens a $3.5 million exemption, along with the 2009 45% tax rate for assets passing to loved ones over and above $3.5 million.
3. Although not previously thought possible, Congress may decide to do nothing. Under the 2001 EGTRRA tax legislation, if Congress does nothing, the entire 2001 tax legislation “sunsets,” and we will revert back to the pre-2001 Clinton era tax legislation. Under such legislation, citizens will be given only a $1.0 million exemption, with the top estate tax rate returning to 55%.
Changes are coming. Be sure to keep up to date with the changes to these tax rules as they are passed into law by contacting your estate planning attorney or tax advisor.
If you have any questions regarding family based estate planning or any other legal issues, please do not hesitate to call the attorneys at Rowley, Chapman, Barney & Buntrock, Ltd. (480) 833-1113. Kenneth C. Barney is a partner with the law firm of Rowley, Chapman, Barney & Buntrock, Ltd..