You may remember that in 2001, The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made sweeping changes to wealth transfer taxation. EGTRRA gradually phased out the estate and generation-skipping transfer (GST) taxes and completely eliminated both in 2010, and in 2011 the taxes came back in full-force.
If you met with an estate planner between 2001 and 2009, I’m certain that they told you that although they couldn’t predict the future, it was doubtful that Congress would allow the estate tax to be repealed in 2010.
Well…we were wrong.
Congress was so focused on health care, that time ran out for them to fix the estate tax. So here we stand in 2010 with no estate tax and a carry over basis. Plus, for those individuals who die in 2010, a host of unique issues are presented.
Suffice it to say, we aren’t certain what congress will do (if anything) before the tax hike of 2011 is scheduled to hit.
I’m sure you are wondering “What tax hike?”
Well, last year, estates under $3.5 million were exempt from federal estate tax. The top tax rate in 2009 was 45%. In 2011, if Congress does nothing, the federal exemption level will drop back down to $1 million and the top tax rate will shoot up to 55%. That rate doesn’t even include the 5% surtax on wealth transfers ranging between $10 million and $17.18 million. If the tax does come back at this level, it’s going to be an ugly reality for those who have estates of $1M and chose not to incorporate some minimal tax planning in their will.
A recent article from The Hill indicates that Congress may have something in the works relatively soon on the Estate Tax. Click here to read the article. I can only hope that Congress does something and soon regarding the estate tax, so that we can better assist our clients with developing a plan.
By the way, in Idaho, House Bill 492 was signed by the Governor Otter on March 18, 2010 in order to solve some of the issues caused by the repeal of the Estate Tax. The law is effective January 1, 2010. I think that this legislation will go a long way in solving some of the problems we face today due to the estate tax repeal.
Make sure to stay tuned as this estate tax drama unfolds.