Taxation & Estate Planning

The Responsible Estate Tax Act (RETA)

By michael

The Responsible Estate Tax Act is the irksome name of the act introduced this morning by Senators Sanders (I-VT), Harking (D-IA) and Whitehouse (D-RI) to remedy the impending doom of 2001 when the estate tax is (re-)released like the Cracken upon an ill-prepared populace…  However, its at least something, hence my first post in some time.

The prolific Paul Caron of the TaxProf Blog has already posted the details and linked to a number of worthy reads on this new act which I have re-posted at the bottom here.  Thanks Paul!

In short, the act brings the estate tax back with a $3.5 million exemption with the highest rates (for most of us) at 45%.  There is a progressive rate structure that increases the highest rate for the wealthiest among us – 55% for estates over $50 million – and a billionaires surcharge.

The Senators summarize their bill as follows:

Exempts the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Doing this would mean that 99.75% of all estates would be exempted from the federal estate tax in 2011 alone.

Includes a progressive rate structure so that the super wealthy pay more. Under our bill, the rate for the value of the estate above $3.5 million and below $10 million would be 45%, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50%, and the rate on the value of estates above $50 million would be 55%.

Includes a billionaire’s surtax of 10%. Our bill also imposes a 10% surtax on the value of an estate above $500 million ($1 billion for couples). According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion. Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others.

Closes all of the Estate and Gift Tax Loopholes requested in President Obama’s Fiscal Year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes; a modification of rules on valuation discounts; and a required 10-year minimum term for Grantor Retained Annuity Trusts (GRATS). OMB has estimated that closing these loopholes that benefit the super-wealthy, would raise at least $23.7 billion in revenue over 10 years.

Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to $1 million for estate tax purposes under § 2032(a) (Special Use Valuation). Our bill increases this level to $3 million and indexes it to inflation.

Benefits farmers and other landowners by providing estate tax relief for conservation easements. Our bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60%.

I’m happy to see any movement on this issue because of the extreme hardship that the $1 million exemption will cause my clients.  I’m not holding my breath but I will risk cautious optimism.

Professor Caron posted the below sources in his original post and almost all are worth a read.  Warning:  I would avoid Chris Dubay’s piece at the Heritage Foundation’s website.  Putting aside that its terribly written, its more assertion than fact and does little to increase the reader’s knowledge, either of the estate tax itself – something Mr. Dubay clearly has no understanding of based on his other published pieces on the same subject - or the proposed legislation…  Its just really sophomoric work and more of the ilk of a Glenn Beck-style opinion piece than a scholarly examination of proposed legislation.

Forbes, Three Senators Call For Billionaire Estate Surtax, by Janet Novack

Going Concern, A Few Senators Would Like Billionaires to Pitch in with the Deficit Problem, by Caleb Newquist 

Heritage Foundation, Dangerous Death Tax Plan Offered in the Senate, by Chris Dubay

The Hill, Sanders Forwards Estate Tax Fix That Inflicts Pain on the Wealthy, by Jay Heflin

New York Post, Death Tax Compromise Favors New Yorkers, by Josh Kosman

Wall Street Journal, Sanders Estate-Tax Proposal Would Hit Wealthy Harder, by Laura Saunders 

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Full post as published by The Ohio Trust & Estate Blog on June 25, 2010 (boomark / email).