The Bloomberg BNA Estate Tax Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Friday, June 3, 2011
On December 6, President Obama announced that he and Republican leaders in Congress had reached agreement on temporary estate tax legislation as part of a larger package that would extend the so-called Bush tax cuts. Without the legislation, the estate tax will return to a $1.0 million exemption and a top rate of 55% on January 1.At this time, we only have the general outline of a deal between the President and the Republicans, and details will emerge later. The main points are that, for decedents dying in 2011 and 2012, the estate tax exemption will be $5.0 million and the tax rate will be 35%. There seems to be no attempt to renew the battles of the last year by retroactively imposing the estate tax on decedents dying in 2010. Those estates appear to have escaped the estate tax, although they must still deal with carryover basis. Several aspects of the deal are worth noting. First, the $5.0 million credit / 35% tax rate is proposed only as a temporary two-year measure, so clients and practitioners still do not have the planning certainty that has been missing since EGTTRA was enacted in 2001. Second, we may see further changes to the Obama proposal, because the Republicans still need to attract Democratic votes in both Houses to enact this plan. Third, nothing in this deal appears to have an adverse impact on tax planning that took advantage of the absence of a GST tax during 2010. It should still be possible to make direct skips and to terminate GST trusts in 2010 without attracting GST tax. And fourth, taking advantage of the temporary 35% gift tax rate in 2010 now becomes less attractive, unless you believe that the 35% estate tax rate will not stick. Harold W. Pskowski, Managing Editor for Estates, Gifts and Trusts
At this time, we only have the general outline of a deal between the President and the Republicans, and details will emerge later. The main points are that, for decedents dying in 2011 and 2012, the estate tax exemption will be $5.0 million and the tax rate will be 35%. There seems to be no attempt to renew the battles of the last year by retroactively imposing the estate tax on decedents dying in 2010. Those estates appear to have escaped the estate tax, although they must still deal with carryover basis.
Several aspects of the deal are worth noting. First, the $5.0 million credit / 35% tax rate is proposed only as a temporary two-year measure, so clients and practitioners still do not have the planning certainty that has been missing since EGTTRA was enacted in 2001. Second, we may see further changes to the Obama proposal, because the Republicans still need to attract Democratic votes in both Houses to enact this plan. Third, nothing in this deal appears to have an adverse impact on tax planning that took advantage of the absence of a GST tax during 2010. It should still be possible to make direct skips and to terminate GST trusts in 2010 without attracting GST tax. And fourth, taking advantage of the temporary 35% gift tax rate in 2010 now becomes less attractive, unless you believe that the 35% estate tax rate will not stick.
Harold W. Pskowski, Managing Editor for Estates, Gifts and Trusts
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