Congress is running out of time to address the “disappearing” estate tax set to occur on January 1, 2010.
As the law currently stands, the federal estate tax will disappear January 1, 2010. Unless Congress acts prior to December 31, 2009, there will be no Federal Estate Tax for individuals who die in Year 2010 Thus, the question remains, just what is Congress going to do?
It is impossible today to know for certain what final estate and gift tax legislation will provide. It is possible that Congress will pass new legislation sometime in Year 2010 and make same retroactive to January 1, 2010.
There are pending proposals, but no action has thus yet been taken. The following is a list of items that are being addresses by the various proposals:
· Repeal: Whether to permanently repeal the estate tax or to continue the estate and gift tax regime
· Estate Tax Exemption: What amount each person should be permitted to pass free of estate tax, and whether the amount should be indexed for inflation
· Top Tax Rate: Which top tax rate to impose on estates and gifts in excess of the exemption amounts
· Unification of Estate and Gift Tax Exemptions: Whether to unify the estate and gift tax exemptions, so that each person has a total exemption amount that he or she may use to make gifts during life or bequests at death (While the current estate tax exemption is $3.5 million, the gift tax exemption is $1 million.)
· Portability: Whether to permit a surviving spouse to use a deceased spouse’s unused exemption amount (For example, today a married couple theoretically could pass $7 million in assets estate tax-free, by utilizing each spouse’s $3.5 million exemption. However, if the first spouse to die only had $2 million in assets, and the surviving spouse had $5 million in assets, the first spouse could not transfer his or her unused $1.5 million exemption to the second spouse. The surviving spouse’s estate would be subject to estate tax on $1.5 million—$5 million in assets reduced by the $3.5 million exemption. The proposed portability provisions would allow the unused exemption amount of the first spouse to die to pass to the surviving spouse, allowing a married couple to maximize the use of their available exemptions, regardless of how their assets are held as between themselves.)
· Basis in Inherited Property: Whether to continue to provide for a step-up in basis for inherited property or to continue carryover basis, which presently is scheduled to apply only for 2010 (Under current law, the basis in a decedent’s assets is “stepped-up” to date of death values so the assets can be sold without a taxable gain. With “carryover basis,” as the name implies, basis does not change at the decedent’s death.)
· Discounts: Whether to eliminate certain discounts, such as discounts for lack of marketability and for minority interests, applicable when valuing entities that are owned by related parties, to the extent such entities own passive investments
