Legislative Proposals and Possible Estate Tax Changes

Out of the glare of the Presidential election cycle, there have been developments in this area in the U.S. Senate.  The Budget Resolution agreed to by the Senate included an amendment which presumed the law in 2009 to be permanent-this includes a $3.5 million exemption and a 45 percent rate of tax (federal, excluding any state estate tax).  A number of other amendments were rejected, which offered exemptions in the range of $5 million to $7.5 million, and tax rates ranging from 15 to thirty five percent.

Beginning in November last year and wrapping up on April 8th, the Senate Finance Committee held three hearings to explore and discuss the estate tax system and reform options, including the problems which are imposed by the uncertain status and effect of existing law.  Of particular interest were the consideration of such options as:

  • Unifying the gift and estate tax exemptions (the lifetime gift tax exclusion is presently $1 million and NOT slated for increase;
  • Making the spousal exemptions portable (to avoid the loss of the exemption of the predeceasing spouse through lack of planning);
  • Enhancing rules for the advantageous handling of farms and small businesses;
  • Limiting the applicability of the GST Exemption to multiple future generations;
  • Eliminating the use of valuation discount planning for investment assets by imputing ownership among family members and related entitities, and;
  • Eliminating or dramatically reducing the use of Crummey withdrawal powers

Prognosis from the Will Doctor:

We continue to be confident that the implementation of a permanent exemption of $3.5 or possibly $5 million, along with a federal transfer tax rate of 35-45% will occur in 2009.  As to the other proposals noted above, their adoption is uncertain, but the most likely one for serious consideration remains the addition of portability of spousal estate tax exemptions.

Posted in Status of Tax Legislation, WillPlan Blog.

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