Estate Tax Reform in 2009 Expected

Based on the Legislation introduced in 2008, we can expect the elimination of the one-year repeal of estate and GST taxes in 2010 (and the imposition of the pre-2001 estate tax regime in 2011).  Stepped-up basis should continue as well.  The election of Obama only reinforces this likely outcome, including:

  • Continuation of the maximum (federal) rate of 45%;
  • Indefinite continuation of the estate tax exemption of $3.5 million now in effect for 2009 (indexed for inflation);
  • Continuation of the $1 million NY exemption;
  • New: easier “portability” of the federal exemption from the pre-deceasing to the surviving spouse.

Other proposals are considered more speculative, but have been removed from consideration along with the above, including:

  • Re-integrating the estate and gift tax exemptions to the same amount;
  • restoring the state death tax credit and repealing the state death tax deduction (particularly valuable to reduce estate taxes for New Yorkers;
  • limiting minority and fractional interest/control discounts to entities doing business with the public;
  • curtailing the use of “crummey” annual exclusion gifting;
  • limiting the duration of the GST exemption’s benefits to one additional generation.

Of course, potentially higher income tax rates will increase the advantages of income shifting and irrevocable trusts which are leveraged by being taxable on the grantor/creator’s income tax return.

Estate tax reform is likely to be included as part of the new administration’s  “middle class tax plan”, and passed in the first half of this new year.

Posted in Status of Tax Legislation, WillPlan Blog.

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