Sunday, March 21, 2010

2010 Estate Tax update

Due to the inaction of Congress at the end of 2009, we enter 2010 with the estate tax law in a state of flux.  We have new estate tax law that went into affect at the first of the year that will likely be superceded by a new estate tax law sometime this year.  In all likelihood, the new estate tax law will look very much like the estate tax law we had in 2009. 

 In 2009, the House of Representatives (supported by most Democrats and Obama) have passed a law with a 3.5 million dollar estate tax exemption, 45% top tax rate and continued stepped up basis for inheritied property.  The Senate meanwhile passed a bill (supported by the Republicans and 10 Democrats) with a 5 million dollar exemption, 35% top tax rate and continued stepped up basis on inherited property.  Unfortunately the two houses never were able to reconcile the two bills and probably won't get to it until healthcare reform is resolved.  However, I would expect the new law to be within the ranges of these two bills.

Confused?  The bottom line is that regardless of what happens to the law relatively few Americans will affected by these laws.  Thus most estate planners are advising their clients not to do anything with regards to their estate planning documents until a long term estate tax is put in place by Congress.  I continue to advise my client of high net worth to assume a 3.5 million dollar exemption. We assume this will happen in the coming months but inaction by Congress is always a possibility( which we create even more havoc as the current law will expire and the old system of  a 1 million dollar estate tax exemption and a 55% tax will be the new law). 

If you have any further questions, please feel free to contact me anytime.

For a summary of the estate tax laws for 2009, 2010 and 2011, click here.