Permanent Repeal of the Estate Tax Unlikely

It's no secret that the federal gift, estate and generation-skipping transfer tax rules have changed dramatically in the last ten years or so…and that they will likely change again before long. While no one knows yet with certainty what those changes will look like, it's clear they will affect most families of means in one way or another. Our purpose here is to acquaint you with the broad provisions that have been discussed in Congress, because it also seems likely that some variation on these proposals may be enacted.

Maybe the unpredictability is coming to an end. U.S. Rep. Earl Pomeroy has introduced a bill that, if passed, would bring some certainty to estate planning. And there are good reasons to believe that the proposed legislation, or some version of it, actually could become law yet this year. First, permanent estate tax reform has been stymied in recent years by efforts to have the tax completely repealed. With rising federal budget deficits, repeal of the estate tax now seems a near impossibility. Second, if Congress does not act this year, then the estate tax will "disappear" for the year 2010, only to reappear in 2011.

Pomeroy's proposed legislation would keep the basic structure of our existing estate and gift tax system in place, with these significant changes:

– The estate tax exemption amount (the amount that every U.S. citizen can pass free of estate tax) would stay at $3,500,000 for 2010 and thereafter, and would be adjusted for inflation in those future years.

– The gift tax exemption amount (the amount that every U.S. citizen during their lifetime without paying any federal gift tax) would be increased to $3,500,000. The gift and estate taxes would become unified once more, so that U.S. citizens could use either their gift exemption amounts or their estate tax exemption amounts for a total of $3,500,000. Put another way, gifts during life would reduce the amount of property that could be passed tax free at death, dollar for dollar.

– The top estate and gift tax rate would remain at 45 percent.

– For married couples, the estate tax exemption would be "portable," so that if the first spouse to die did not use all of her or his exemption, then the unused portion could be used later by the surviving spouse.

– Certain valuation discounts would be disallowed.

Note that this legislation is only proposed. Yet this may be an opportune time for you to reacquaint yourself with your overall estate plan, so that when new gift and estate tax laws are passed, if that happens, you will be ready to update your estate planning documents to conform to them, and to take advantage of tax planning opportunities that we expect could be available at that point. If you have any questions regarding estate planning, please contact Gordon Wishard, Richard Johnson, Gina Giacone, Kristine Bouaichi, Kevin Alerding and Andrew Vento.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.