Future of Federal Estate Tax Remains Murky


Following are observations by Amy C. O’Hara, Esq., a Littman Krooks attorney who focuses on estate planning, estate administration, trust administration, guardianships, special needs planning, and elder law.

Uncertainty concerning the federal estate tax continues. Allowed to lapse entirely at the end of 2009, it’s scheduled to jump to 55 percent on January 1, 2011, on estates valued at $1 million or more.  This means that the number of estates subject to federal tax will increase by a factor of eight from 2009, when the exemption was $3.5 million.

No one envisioned this scenario.  In 2001, after dropping the estate tax from 55 percent to 45 percent, a contentious Congress gave itself an eight-year window to work through its differences. It was thought that the “threat” of a 2010 expiration would spur compromise.  But not so. Since then, the exemption has steadily grown from $675,000 to $3.5 million per individual.

All year, observers have expected that some middle ground, and possibly retroactive measures, would be legislated. All year, individuals and their estate planners have struggled with an ambiguous tax environment. Election years, though, are unpopular times for tax-related action. Regardless of one’s vote, a public official is likely to anger some constituent, and Congress has recessed without taking decisive action.

The question is whether anything will change when Congress convenes following the November elections. Assuming that our representatives and senators take action, will the new rate be 35, 45, or 55 percent?  What will be the exemption amount?

Many observers think that no action at all will be taken this year because the congressional agenda is packed and there are so few working days left in 2010. In the meantime, the best that can be done is to factor flexibility into your estate plan while you wait.

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