Estate Tax Update
There has been much discussion about the temporary repeal and reinstatement of the federal estate tax.
Here is a brief summary of some of the current proposals.
There are three major bills in Congress:
Senate Bill 722:
- Makes permanent the 2009 $3.5 million exemption and top 45% tax rate
- Reunifies the estate and gift tax exemption (the gift tax exemption is $1 million in 2009)
- Indexes the exemption for inflation
- Allows for exemption portability (i.e., allows the transfer of a decedent's unused exemption to his or her surviving spouse)
House Bill 2032:
- Makes permanent the exemption level at $2 million
- Establishes top tax rates of 45% for estates valued between $2 million and $5 million, 50% for estates valued at $5 to $10 million, and 55% for estates valued over $10 million
- Reunifies the estate and gift tax exemption
- Indexes the exemption for inflation
- Allows for exemption portability
- Restores the state death tax credit
House Bill 436:
- Makes permanent the 2009 $3.5 million exemption and top 45% tax rate
- Reunifies the estate and gift tax exemption
- Limits the valuation discount for family limited partnerships (FLPs)
- Provides strict valuation rules for the transfer of non-business assets
And, the Congressional Budget Office has modeled these four options for Congress:
Option 1:
- Makes permanent the exemption level at $5 million
- Establishes the tax rate to equal the top rate on capital gains (currently 15% in 2010 and 20% thereafter)
- Indexes the exemption for inflation
- Disallows the deduction for state death taxes
Option 2:
- Makes the same changes as Option 1, but a two-tiered rate would be used -- the first $25 million of taxable assets would be subject to the top capital gains rate, then taxable transfers above $25 million would be taxed at 30% (and the $25 million threshold would be indexed for inflation)
Option 3:
- Makes permanent the 2009 $3.5 million exemption and top 45% tax rate
Option 4:
- Repeals the estate tax in 2010
- Retains the $1 million gift tax exemption
- Institutes a carryover basis regimer state
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