Sunday, December 12, 2010

A Change in the Estate Tax is Imminent (Perhaps!)

Big news for estate planners and their clients this past week: President Obama's omnibus tax compromise includes a per person exemption from federal estate tax of $5 million (rather than $1 million, as scheduled under President Bush's sunset provision) and a top rate of 35% (rather than the scheduled 55%).

As proposed, the new exemption and rate apply only for 2011 and 2012 (with a reversion to the $1 million / 55% framework in 2013).  This means ongoing long-term uncertainty for planners and clients.  Also, media outlets are reporting that the Democrats in the House of Representatives are very angry with the President's willingness to agree to a higher exemption and lower rate, so the coming week will include crucial (and potentially fascinating!) negotiations between the House and Senate.

There's no shortage of coverge of the recent legislative developments:

The State of the Estate Tax (Wall Street Journal, December 11, here):
"A deal by President Barack Obama and top Republicans, which seems likely to pass Congress before Christmas, has a double dose of good news for the wealthy: a low 35% top rate on estate taxes and a high $5 million exemption per individual—plus new ways to plan around the tax. The gist: Estate planning is about to get easier for taxpayers—with more benefits for heirs. "It seems estate planners got everything they wanted and nothing they didn't," says estate expert Ronald Aucutt of McGuireWoods LLP. Washington insiders say the terms aren't likely to change much from here, although the road to passage in the House may be bumpy."
Estate Tax Could Be More Generous (Washington Post, December 10, here):
"Relatively few tax filers would be affected by the estate tax under the proposed deal - just 3,600, according to the Tax Policy Center. They would pay a total of $11.3 billion in estate taxes. Under the estate tax preferred by many Democrats, 6,500 estates would be taxed, raising $18 billion for the government. A who's who of progressive organizations, including key labor unions, blitzed lawmakers with letters this week arguing against the more generous estate tax."
Estate Tax Cutoff Draws Fire (New York Times, December 10, here):
"Republicans who have long opposed the estate tax, deriding it as the “death tax” and complaining it amounted to double taxation, have said little publicly about it in recent days. Privately, however, many acknowledge that it is a far better deal than they ever expected. The White House has made no effort to defend the estate tax provision or suggest that there is any economic merit to the proposal. Aides said that Mr. Obama had agreed to it only reluctantly to secure the overall deal."