Taxation & Estate Planning

The Future of The Estate Tax ? Rumor Round-Up

By michael

Much has been written of late about our evolving federal estate tax so I thought it prudent to aggregate the claims, guesses and rumors that are out there.  I don’t know if this is meant to assist you with planning decisions or just to get a sense of which way the prevailing winds are a-blowin’ , but I just thought it would be interesting.

There are a couple different camps out there and I’ll try to organize them thusly below:

1. The 1-Year Extension

In summary this school of thought is of the opinion that congress won’t get into any real debate over the FET this year.  Instead, they’ll merely pass a 1 year extension of 2009’s rates and exemptions through 2010 thus allowing the FET to drop down to $1 million per person in 2011 with an additional 10% added on to the applicable rate per the existing law.

• This article at TheHill.com on 9/15 as linked-to by Professor Berry in this post.
• Greg weighs in on this possibility in this post, also from September of this year.
• Via this post, Jim Gust links to an article similar to the above putting him in some pretty good company in this category.

2. The Retroactive Option

This one is even scarrier.  Gideon Alper of the Gay Couples Law Blog writes in this post: Don?t be surprised if Congress does nothing about the estate tax this year, not even a one year extension. Instead, it can wait and pass an amendment that retroactively taxes the estates of people who die in 2010.  Ugh right!  He continues, citing multiple other sources:  Lots of people have written about the consequences of Congress doing nothing by the end of the year and letting the estate tax expire in 2010 . Expect to hear even more from people the longer Congress waits to do something.

However, it looks like Mr. Alper falls into the 1-Year Extension group above as he follows the above quoted nightmare with his opinion that congress isn’t likely to do anything based on this article in the WSJ.

3. Not Sure What’s Going to Happen But The FET WILL Go Up

Finally, in this post Greg links to this article by Evan Cooper at Investment News.  No real conclusions came from the panel but they all agreed that FET is much more likley to go up than down – meaning either that rates will go up, exemptions will come down or both.  Again, ugh.

Conclusion?

It appears that the one year patch is the favored school of thought among those who care about this particular tax but all bets are off when dealing with congress so no real advice is available right now.  I think Greg said it best when he said that it is no longer safe to rely on $3.5 million being the exemption.  Given all that congress is trying to do right now and all that they have to pay for, it seems highly unlikey that this tax will go down.

My opinion:  the 1 year patch seems the most reasonable scenario because it allows congress to do nothing.  That way the D’s can blame the R’s for passing the law in the first place.  And really people, why do something when its so much easier to do nothing and blame someone else for having screwed it up before you even got there?

Ugh

Full post as published by The Ohio Trust & Estate Blog on October 06, 2009 (boomark / email).