Greetings!
Not a single Estate Planning professional ever thought we would go ten years since the enactment of the revised Estate Tax laws in 2000 without Congress amending the bill in time to avoid what is about to occur on January 1, 2010; namely no more estate tax for the entire year of 2010.
At a time when the government coffers need every penny they can muster, the passing of the clock at midnight tonight marks an historic event in American tax law. The Federal Estate Tax will be repealed on January 1st, 2010.
Expiration of the estate tax at the end of the year marks the first time since 1915 that there has been no estate tax, according to the Journal of Financial Services Professionals. There was no estate tax from 1870 to 1898. It was repealed in 1902, then reinstated in 1916, according to the Journal.
Under current law, the estate and generation-skipping transfer taxes expire at the end of 2009 (tomorrow). However, this tax is replaced with a more complicated tax structure regarding the gifting of assets at death.
The gift tax will be retained with a top rate of 35% and an exclusion amount of $1 million. The stepped-up basis at death rules will be repealed and replaced with a modified carryover basis. Each person will have a $1,300,000 exemption from carryover basis, plus a $3,000,000 exemption for transfers to a surviving spouse.
Under these rules, the recipient of the bequeathed property would receive a basis equal to the adjusted basis of the property in the hands of the decedent or to the fair market value of the property on the date of the decedent's death, whichever is less. As a result, many estates and beneficiaries may be subject to capital gains tax upon the sale of these assets. Let me repeat, again that in 2010 beneficiaries may be subject to capital gains tax on inherited assets.
Because of this unforseen development, I will be making a concerted effort to contact all clients to come in for a quick review of their estate in light of these drastic new developments. After all, no one can predict when any of us will pass and so we must be prepared. I urge you to not wait for me to call, but rather to call and schedule an appointment at your earliest convenience.
January 1, 2011, the estate and generation skipping tax would return with an exemption of only $1 million and a top tax rate of 55%. That is the structure that existed in 2000.
This occurred despite an effort in the House in early December to establish the estate tax at a $3.5 million per-person exemption and a maximum tax rate of 45%. But the Senate refused to act, even failing to extend current law for 3 months on Dec. 16 at the request of Sen. Max Baucus, D-Mont. They did so because the Democratic leadership could not get the unanimous consent needed to win passage of the short-term extension because Republicans object to the tax.
Congress said before it left that they will revisit the tax early in 2010 and try to work towards reconciling the issue with retroactive provisions. However, it is interesting to note that the chief counsel of the House Ways and Means Committee has drafted an opinion that making a future tax law change retroactive to Jan. 1, 2010 might in fact be un-constitutional.
Again I urge you to make time to set an appointment and stay tuned...it's going to get interesting.
Sincerely,
Bill Massarweh |
