As Washington hurries to pass new healthcare legislation before the end of the year, the heirs of America's wealthiest families are hoping for a Christmas present from the government.
With nearly all available attention being applied to the healthcare bill, lawmakers have yet to take time to determine the immediate future of the estate tax. Without action before the end of 2009, wealthy Americans families could be looking at a year free of charge on what would usually be taxable estate transfers.
Prior to 2001, up to $1 million was exempt from estate tax consideration; above this amount, the estate was taxed at 55 percent. Following President Bush's 2001 tax plan, the amount of exempt transfers increased to $3.5 million, with the remainder being taxed at a rate of 45 percent.
While this was a welcome amendment for opponents of the estate tax, it wasn't a permanent change.
As the situation currently stands, the plan expires in 2009, with a return to higher rates scheduled for 2011. Before rates are set to go up again, there is a lull and, as of now, there is no estate tax in place for 2010.
However, lawmakers have indicated that they will push for changes to the law before the end of the year. House Majority Leader Steny Hoyer has suggested that congressional Democrats may attach a temporary measure to prevent the repeal of the estate tax to a defense spending bill heading to the floor this week. Hoyer did not indicate how many years the estate tax measure would cover.
If attached, there is a good chance that this bill will pass; the defense spending bill is viewed as a necessity. Some have expressed concern, though, that this bill is quickly getting loaded down with issues completed unrelated to defense spending. In addition to addressing the estate tax repeal, the bill is likely to seek to extend jobless and health benefits for the unemployed.
Still, if Congress does not act before the end of the year, estate taxes will disappear in 2010, reemerging in 2011. If this happened, a year without taxation would be followed by a year with increased fees. Under the current plan, 2011 would see tax exempt transfers lower to $1 million, with a taxable rate of 55 percent applied to remaining estate transfers.
Regardless of what happens in the next few weeks though, the coming year will likely leave many people reexamining their existing estate plans. When preparing for the future in a time when the laws are clearly in flux, make sure to consult a knowledgeable estate planning attorney to protect your rights and interests.