Wednesday, December 23, 2009

One Year Estate Tax Repeal -- Can Congress Act Before New Year's Eve?

As it stands right now, the current Estate Tax (enacted in 2001) that applies to estates of a certain size ($7 million for families, $3.5 million for individuals) will be repealed on the first day of 2010, only to return in one year's time (01/01/11). In its rebirth on January 1, 2011, the top tax rate will be 55% (today it's 45%) and the exempt amount will be $1,000,000 (right now it's $3,500,000) -- and it will apply to smaller estates (e.g., $1 million for individuals).

However, for this one year -- 2010 -- there'll be no tax rate and no exempt amount, because there will be no Estate Tax unless Congress does something.

Checking the online newsfeeds, Reuters is predicting chaos ("Estate Tax Repeal Seen to Bring Chaos") and the Associated Press is reporting a probable extension of the current law, passed retroactively in January 2010.

Today is the day before the day before Christmas. Already, the Senate declined a House proposal to temporarily extend the current Estate Tax for a two months, to give Congress time to do something more concrete after year's end. Today, there's nothing on the table. What are the chances that President Obama will have something to sign within 10 days time?

There's talk about Congress passing legislation early next year that would apply retroactively. Of course, someone starts talking about retroactive taxation and someone else immediately brings up litigation on its constitutionality.

And, let's not forget that in 2010 -- unless something happens -- some estates that will be required to pay a capital gains tax that has been avoided in past years.

It's going to be an interesting year in probate circles ....