Fall, 2007: New Starting Point for Updates

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I have started a new blog for hosting my updates, and it seems appropriate, as we are transitioning away from the Bush era -dealing with the reduced chances of actual repeal of our existing unified transfer tax (read Estate, Generation Skipping Transfer, and Gift Tax) regime. As posts will now show, two things seem to be apparent:

  • Increased likelihood (although no certainty) of Congress debating ideas such as 1)an extension of the $3.5 million exemption (per parent) which is effective 1/1/09, or 2) a phase in of a $5 million exemption-so this is a reasonable starting range for planning assumptions, and
  • Reduced possibility of meaningful rate reduction from the present 45%, (Federal), to something far lower such as the (Bush wish list) 15% rate presently applicable to long term capital gains (income taxes). Until recently, rate reduction went hand in hand with proposals floated to extend and liberalize the transfer tax regime.

Although each day there is a worrisome increase in the chances that political gridlock will prevent any change to the existing law (repeal in 2010 with an absurd income tax on inherited property instead, followed by the reinstatement of a pathetically small $1 million exemption in 2011), it still seems very likely that Congress will act before 2010 to continue our transfer tax system with some higher exemptions and maybe lower rates than now prevail.  So: Now: For the Latest:

Senate Finance Committee Chairman Max Baucus, D-Mont., says his committee will take up the estate tax issue again sometime next year.  Baucus talked about the issue during a markup of the 2008 farm bill last week.

Sen. Jon Kyl, R-Ariz., raised the issue by offering an amendment that would have raised the individual estate tax exemption to $5 million, from $2 million today.  The amendment also would have set the rate for taxation to the capital gains rate, with an exemption ceiling of $25 million to take effect as of 2010.  Estates beyond the $25 million threshold would be taxed at a 30% rate.  Kyl agreed to withdraw the amendment after Baucus agreed to hold a hearing on the issue and a markup of an estate tax bill “next spring.”

“An interest in dealing with the estate tax issue among members of both parties still exists,” says Larry Raymond, president of the Association for Advanced Life Underwriting, Falls Church, Va.  But Baucus’s comment about scheduling “significantly diminishes the prospects for action on the estate tax in 2007,” Raymond says.

Legislation similar to the Kyl amendment came close to passing in 2006.

Sen. Blanche Lincoln, D-Ark., had also planned to introduce an estate tax amendment during the markup.  The Lincoln amendment would have increased the amount of farm land that families could exclude from estate tax calculations.  Lincoln decided not to offer her amendment after Baucus and Kyl reached their agreement.

New Yorkers for the foreseeable future will not have a gift tax, but face a death tax on top of the Federal Estate Tax after only a $1 million exemption (this is referred to as “decoupling” from the federal system); this results in a tax of close to $100,000 to NY in order to take full advantage of the larger Federal exemption in your planning. Fortunately, methods have been developed in the last five years to deal with this issue in a flexible way.

Posted in Status of Tax Legislation, Uncategorized, WillPlan Blog.

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