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.

Since 2001, I said it would never happen.  I was totally wrong: I over-estimated the politicians.  That's always a mistake.  I said they will never let the 2010 George Bush NO DEATH TAX LAW take effect - it will be changed before we get into 2010.  Nope.  They have been paralyzed. And it continues through 2011: The SuperCommittee seems to have failed to do anything, so now we continue to wait.  In the meantime, we may gift $5,000,000 while it's still available.

Here is the history of how we got here:

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 move into the last 2 weeks of 2010, the law on the books was if you died in:

• 2009, you may leave $3,500,000 tax free (and 45% tax on the excess);
• if you died in 2010 there was 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.
• 2011 (or 2012), you may leave (or give) $5,000,000 tax free (and 35% tax on the excess)
• 2013 (or later), you may leave (or give) $1,000,000 tax free (and 55% tax on the excess).

I have warned people since this law passed in 2001 that the NO TAX law for 2010 would never really happen; it would change before we got into 2010.  In fact, as recently as November, 2010,  the House wanted to change the law for all of 2010, retroactively.

Then it happened: Obama and the Republicans made a deal.  For 2 years.  Hopefully we will not have to wait until the end of 2012 to get further extensions, but I would not bet on the Senate or House doing anything logical.

Tax Free Amounts at Death