Update on Estate Tax: Senate Fails to Get it Done in 2009


As we have been following, the federal estate tax is set to disappear in 2010.   The push by Democrats to extend the current rate permanently failed to pass a short- term extension to override the tax’s expiration date last week.    Currently the top rate is 45%, with a $3.5 million exclusion rate.  Per the 2001 Legislative act and if Congress can get nothing done, there is no estate tax for the 2010 year but come 2011, the rate will increase to 55%, with a $1 million exclusion rate.

There is also a little known provision inside the 2001 legislative act that may cause much angst to those people who inherit property 2010 and later sell it paying a higher capital gains tax.  This means that you have to calculate the gain based on the price the decedent paid for the asset, instead of the value at the time of transfer.  This means that many people would have a new capital gains liability from the provision in the 2001 Legislative act.  So instead of looking at the 2010 year as a tax break, it will be another tax increase for those that inherit property.

The combination of depressed asset values and confusion over the estate tax rules has created an environment where people are not moving forward with their planning, sitting on the sidelines waiting for Congress to make a ruling.  Hopefully, Congress will be spurred into action early next year to address the issues around this legislative act.  They need to move forward so that many upper and middle class families can proceed with effective estate planning.

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