New Developments in the Federal Estate Tax

For those following the federal estate tax controversy, last month three senators introduced the Responsible Estate Tax Act which if passed will return the federal estate tax exemption to the 2009 $3.5 million level. The current state of the law is that during this year, there is no estate tax at all which means multi million and multi billion dollar estates pass to the beneficiaries free of any federal tax. Without some legislation before the end of the year, the federal estate tax exemption will return to $1 million.

The new bill, if passed, will restore the 2009 exemption of $3.5 million. Estates over $3.5 million will pay federal estate tax. Estates over $3.5 million and under $9 million will be taxed at a 45% rate. Estates between $10 million and $49 million would be taxed at the rate of 50%. Estates over 50 million would pay estate taxes at a rate of 55%. The bill also imposes a 10% surtax on billionaires. (There are approximately 400 billionaires in the United States) It is estimated that passage of the bill would bring at least $264 billion into the economy.

If the federal estate tax issue is not addressed, returning to the $1 million level next year will affect many of our estate planning clients so it is important to keep informed as to the status of this bill. Many clients’ estates fall within the $1 million to $3.5 million range. If the tax reverts to $1 million in 2011, additional estate planning may be necessary to avoid estate tax liability. Different types of trusts and other tax saving techniques may become necessary. We will follow the status of legislation and post any developments here.