Wills-Trusts-Probate Lawyer

The Estate Tax - Will Congress Act?

If Congress fails to act very soon, the 2001 Economic Growth and Tax Relief Reconciliation Act (EGTRRA) is scheduled to "sunset" on December 31, 2010. What does this mean to you and your family?

Currently under EGTRRA there is no estate transfer tax on real or personal property that a decedent leaves behind to his or her loved ones. However, as of January 1, 2011, the estate tax is scheduled to be reinstated pursuant to the pre-EGTRRA tax laws.

What this means to you is that each U.S. resident will have a one million dollar estate tax exemption starting in 2011, with the top estate tax rate returning to 55% for assets over this exemption amount. This change will bring many Americans back into an estate size where estate or death taxes are a real possibility.

A typical American household may hold a personal residence, maybe a small business, investment accounts, checking and savings accounts, vehicles, personal property and a retirement plan or two. Add to these assets a few hundred thousand dollars of life insurance and all of a sudden many Americans are over the $1.0 million dollar exemption amount and thus subject to estate taxes, regardless of their modest means during lifetime.

There has been talk within the estate planning community that Congress could extend the 2009 EGTRAA rules, which would result in a $3.5 million exemption and a lower top estate tax rate of 45%, which would be significantly better than allowing EGTRRA to sunset on December 31, 2010. However, it may not be prudent for families to wait for Congress to act, as they have known about the pending EGTRRA sunset date for over 9 years and have failed to act thus far.

If you have not scheduled to meet with your estate planning attorney, it may be a good idea to book your appointment in advance to see how these changes will personally affect you and your family. Additionally, it will be important to talk to your attorney about the many other ways to reduce if not eliminate your potential estate tax liability, even with the lower pre-EGTRRA estate tax exemptions, with property planning.

Kenneth C. Barney is a partner with the law firm. If you have any questions regarding family based estate planning or any other legal issues, please do not hesitate to call our estate planning attorneys at (480) 833-1113.