ESTATE TAX UPDATE

This Article is designed to be of general interest. The specific techniques and information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.

Tax Free Amounts at Death

In 1997, nearly the entire Senate approved the Clinton Estate Tax exemption increase, from $600,000 gradually working its way up to $1,000,000.  [As this was approved by 60+ Senators, this "Clinton $1,000,000" becomes the permanent base, to which we revert every 10 years, until a new base is set by 60+ Senators.]

In 2001, by a vote of 51-50, the Senate approved the Bush increase in giant steps all the way to NO TAX for dead people in 2010.  Since this law was approved by the Senate by fewer than 60 Senators, it expires after 10 years and reverts to the Clinton $1,000,000.

As we enter 2010, the law on the books right now is that if you died in 2009, you may leave $3,500,000 tax free (and 45% tax on the excess); if you die in 2010 there is no tax regardless of your net worth.  Walter Shorenstein (national real estate magnate) and George Steinbrenner (Yankees owner) died recently (2010), each  worth hundreds of millions, and their estates owe no tax.

But do not get excited:  President Obama wants, and the House has approved, a change, effective retroactive to 1/1/2010, to $3,500,000 tax free.  The Senate has not yet voted, and then they have to meld the different versions into 1 new law.  The new law may be effective retroactively back to 1/1/2010, even if not enacted until later in the year.  The US Supreme Court says they can do this.

If it happens, I expect we will have fewer than 60 Senators approve this new plan, so after 10 years it will revert to $1,000,000 again.  That does not mean we keep the new law for 10 years.  Maybe Obama decides next year to change it to $600,000 tax-free, and 59 Senators approve.  10 years later (unless changed again), it would revert to the $1,000,000 permanent base.

Is this a crazy system?  What you may leave tax free depends on when you die?  You bet!

Feb 1, 2010.  Well, I have been wrong since the Inauguration; I expected prompt action on this issue - retroactive taxation at the $3,500,000 level for all of 2010.  Now I am wondering - is there another Obama Plan?

In 2011 the tax free amount reverts to $1,000,000, and 55% tax rate above that amount.  That should raise lots of tax revenue, for a long time, starting in 2011.  Maybe the Obama administration thinks it is better to suffer 1 bad year (2010) with NO TAX, but more than make it up in 2011 and following years when the tax free amount drops and it hits more people, harder.  After all, this was the Bush Law - it's not the Obama Plan, so whatever happens [no tax in 2010, and big tax in 2011] he can say it's not his fault - blame Bush.

At this point I have no idea what is going to happen.

Tax Free Amounts at Death