Estate Planning

Sensible Estate Tax Act of 2009 introduced in U.S House

By Gregory Herman-Giddens

On April 22, 2009 Representative Jim McDermott of Washington has introduced H.R. 2023, which has been submitted to the Ways and Means Committee for study. The Sensible Estate Tax Act of 2009 would (1) allow an estate tax exclusion of $2 million adjusted for inflation in calendar years after 2010; (2) revise the estate tax rates for larger estates (45% up to $5 million, 50% from $5-10 million, and 55%  above $10 million; inflation adjusted); (3) restore the estate tax credit for state estate, inheritance, legacy, or succession taxes; (4) restore the unified credit against the gift tax; and (5) allow a surviving spouse an increase in the unified estate tax credit by the amount of any unused credit of a deceased spouse.

I agree that this legislation is sensible from a fiscal standpoint, enabling the IRS to collect more revenue (than a $3.5 million or higher exemption would allow), while providing a healthy $4 million that married couples can pass on to children or others with no special planning.  It will also help many states such as Florida that only can collect estate tax on a state level to the extent that the federal government provides a credit, rather than a deduction.

As for spousal portability, as I have said before, while on its face it appears to obviate the need for credit-shelter or bypass trusts, that's not necessarily the case.  Even with portable exemptions, credit-shelter trusts will be important from an asset preservation standpoint, avoiding the possibility of taxation should the surviving spouse's estate exceed $4 million, and protection against future reductions in the estate tax exemption.

There's also the question of how the exemption amount available to the surviving spouse would be established.  If a couple thinks there's a chance that the survivor's estate will exceed $4 million, would an estate return need to be filed at the first death, even it it's under $2 million?  How else would any transfers to others than the spouse be documented?

Full post as published by North Carolina Estate Planning Blog on June 01, 2009 (boomark / email).