Estate Taxes In Turmoil

By: Richard S. Fisher

Tax professionals never thought it would happen BUT there currently is no federal estate tax.  Congress let the tax expire for 2010 although without Congressional action, the tax will reappear for deaths occurring in 2011 and thereafter and the exemption will only be $1 million per person (the exemption was $3.5 million in 2009).

Key lawmakers had suggested that the estate tax would be re-imposed during 2010.  However, as the months go by, the chances of an estate tax retroactive to January 1, 2010 diminish.  President Obama’s budget for FY 2011 proposes making permanent the estate and gift taxes in effect for 2009 - $3.5 million exemption for estate tax, $1 million lifetime gift tax exemption and a top estate tax rate of 45 percent.

In this uncertain time, what should one do if there is a possibility you might be subject to federal estate tax in 2011 or thereafter.

For most of our clients, not doing anything makes sense, at least until Congress acts or we near the end of this year.  However, if your will or revocable trust contains a “credit shelter” trust you may want to review the current effect of this plan.  Also, if you are in a second marriage and the children from the first marriage are the beneficiaries of a “credit shelter” trust, you should determine how the current law could affect this plan.

When and if Congress acts, we will inform our estate planning clients.