When the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) was passed in 2001, it seemed as if estate taxes would soon be a thing of the past. The term estate taxes would become an unpleasant reminder of an old and unnecessary law.
EGTRRA removed estate taxes by increasing the estate tax “coupon” and therefore decreasing these taxes until 2010, when the estate tax vanished completely. The law also decreased the highest rate of tax from 55% to 45%, a substantial savings.
Well 2010 is here! Contrary to popular belief, Congress did not pass an estate tax relief bill by the end of 2009. A bill was passed by the House of Representatives in November but it never got out of committee in the Senate. However, the Senate Finance Committee did discuss “extensive, painful estate tax reform.” So this year we have no estate tax, but we may face income tax instead, on property received when someone dies in 2010. Then on January 1, 2011, the estate tax, under the current law, comes back in with a vengeance. But, if Congress is able to pass an estate tax bill, the bill may not be favorable to the taxpayer.
Right now, on January 1, 2011, the estate tax coupon goes back to $1 million and the highest marginal rate returns to 55%. No additional action from Congress will be required.
So What Do We Do Now ?
We need to plan with flexibility. Our trusts need to be amended to take into account the fact that we have to deal with two or three different versions of the estate tax law over the next few years. Also, Congress may act to make the payment on estate taxes even more painful. In the current deficit climate, they may give us many more challenges to deal with. WE MUST BE PROACTIVE! Call us today.
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