Monday, October 4, 2010

Federal Estate Tax Update

Federal estate tax rates were significantly reduced under President George W. Bush’s Economic Growth and Tax Relief Reconciliation Act of 2001. The act also called for the federal estate tax to lapse in 2010 and to revert in 2011 to rates that were in effect immediately prior to its effective date (i.e. 2001 rates). The federal estate tax did in fact expire, and for this year (2010) there has been no federal estate tax.

If Congress takes no action before year end on this issue, the top estate tax rate on inherited assets will jump to 55% in 2011 on estates exceeding $1 million. Compare that to 2009, when the top rate was 45% with a $3.5 million exclusion.

Two bills recently proposed in the Senate would make significant changes to the federal estate tax system. One would cap the top rate at 35% with a $5 million exclusion, while the other would set a progressive rate of up to 55% with an exclusion of $3.5MM. This could of course change several times before a final bill comes out. Most political pundits seem to agree that no action will be taken before the mid-term congressional elections are concluded in November. Perhaps by the end of the year a bill will pass. As Henry Wadsworth Longfellow once said, “All good things come to those who wait.”

We will keep you up to date.

By IRA Technical Consultant Marvin Rotenberg and Jared Trexler
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