Taxation & Estate Planning

No More Estate Tax in 2010 ? Well, kind of?

By michael

It seems official:  The estate tax will lapse come January 1 of 2010.

Everyone said it wouldn’t happen; it couldn’t happen!  But yeah…  Its gonna happen.  With plenty of notice, our elected leaders just couldn’t get it done.  I’m not saying it was an easy task.  The estate tax has always made strange bedfellows out of conservatives and liberals but I’m pretty disappointed for my clients.  Making things worse are the statements by Chairmen Baucus and Rangel regarding their intent to reinstate the tax retroactively.

The one certainty out of all this is, of course, litigation.

Between the end of 2009 and whenever Congress gets around to reinstating the estate tax, some deaths, trust terminations or trust distributions involving substantial amounts inevitably will occur.  And because opinion seems split among some scholars as to the constitutionality of retroactively applying new law we will get litigation.  (See US v. Calrton, 512 U.S. 26 (1994) and United States v. Hemme, 476 U. S. 558, 568 476 U. S. 558, 568-569 (1986), quoting Welch v. Henry, 305 U. S. 134, 147 (1938))  It will be messy.  It will be noisy.  And the only group of people guaranteed to win are lawyers.

The lapse of the estate tax also brings with it a repeal of the step-up in basis at death.  In theory, this would expose taxpayers who are currently shielded from any tax by the combination of both the estate tax exemption and the step-up, to the capital gains tax on inherited property.  This tax will hit estates above $1.3 million which North Dakota Rep Earl Pomeroy has said will effect over 61,000 estates.  (I’m expecting Congress to retroactively re-instate the step-up in basis along with the reinstated estate tax and generation skipping tax.)

I said I wasn’t going to post any more on the topic of the estate tax until something happened…  I really never though that something would be legislative silence.

Full post as published by The Ohio Trust & Estate Blog on December 17, 2009 (boomark / email).