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Congress Fails to Address Estate Taxes

by Douglas Lineberry on December 18, 2009

As reported by the Wall Street Journal ( Congress has failed to pass a vote to extend estate taxes.  This means that the federal estate tax will effectively (but temporarily) cease to exist on January 1, 2010.

This is not necessarily good news.  In the place of an estate tax certain income tax amendments will become effective.  Significantly, as of January 1, 2010, estate beneficiaries will not get a step-up in basis of assets they receive from estates.  This likely will mean that we’ve replaced a tax on a few thousand estates with an income tax on tens of thousands of individuals when they someday sell their low basis assets.  Even more troubling is the notion that the estate tax will be automatically reinstated on January 1, 2011, but at 2001 levels (a mere $1,000,000 exclusion and 55% top marginal rates).

This also significantly complicates planning.  As reported in the linked article, Congress will probably address the matter next year and hopefully at least extend the 2009 exclusion amount of $3,500,000.  We have, however, spent every year since 2001 hoping that Congress was going to address the issue and it failed to do so for eight years.  That leaves persons with potentially taxable estates (anything over $1,000,000 come 2011) left deciding whether to plan for a $1,000,000 exclusion or to instead plan for a $3,500,000 exclusion and hope that Congress finally acts.

If you have an estate over $1,000,000 you should consult with an attorney well qualified in estate tax planning … but how you decide to plan is not going to be a clear, easy decision.

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