House Passes Extension of 2009 Estate Tax System

On December 3, the House by a vote of 225 to 200 approved H.R. 4154, the “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009.” The bill would make permanent the present-law estate, gift, and generation skipping transfer (GST) tax laws in effect for 2009.

Under changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate tax and the GST tax were scheduled to be repealed for estates of decedents dying in 2010 and a modified carryover basis regime was to apply for 2010. EGTRRA made other changes to the transfer tax rules. All of its changes were scheduled to sunset after 2010.

Under the House-passed bill, the unified credit effective exemption amount for estate tax purposes would be $3.5 million for decedents dying during 2010 and later years. The unified credit effective exemption amount for gift tax purposes would be $1 million for 2010 and later years. The highest estate and gift tax rate would be 45%.

The GST tax exemption would equal the unified credit effective exemption amount for estate tax purposes ($3.5 million), and the GST tax rate would be determined using the highest estate and gift tax rate.

The House-passed bill would repeal the modified carryover basis rules that were to apply for purposes of determining basis in property acquired from a decedent who dies in 2010. Under the bill, property acquired from a decedent who dies after Dec. 31, 2009, generally would receive date-of-death fair market value basis (i.e., “stepped up” basis) under the basis rules in effect in 2009.

The House-passed bill would make permanent EGTRRA’s repeal of the State death tax credit; as under present law in effect for 2009, the bill would allow a deduction for death taxes paid to any State or the District of Columbia. In addition, the bill would make permanent the 2001 Act’s repeal of the qualified family-owned business deduction.

The House-passed bill would repeal the sunset of the EGTRRA estate, gift, and generation skipping transfer tax provisions scheduled to occur for decedents dying, gifts made, and generation skipping transfers made after Dec. 31, 2010. As a result, the bill would make permanent EGTRRA modifications to the rules regarding (1) qualified conservation easements, (2) installment payment of estate taxes, and (3) various technical aspects of the GST tax.

The Will Doctor points out that the various ancillary provisions concerning withdrawal notices, GRAT terms, restrictions on valuation discounts, etc., have been omitted in this simplified version. It is clear that the Senate will make some changes or additions, which may result in some additional changes in the final legislation. It is not certain the Senate can actually pass any measure this year, so we are still confronted with uncertainty.

Posted in Status of Tax Legislation, WillPlan Blog.

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