On December 3, 2009, the House approved the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Bill of 2009. The bill makes the current estate, gift, and generation skipping transfer (GST) tax laws permanent. The provisions of the bill are as follows for 2010 and later years:
- Estate tax exemption amount of $3.5 million
- Gift tax exemption amount of $1 million
- Maximum estate and gift tax rate of 45%
- GST tax exemption of $3.5 million
- GST tax rate determined using the highest estate and gift tax rate
- Repeals modified carryover basis rules for decedents dying in 2010. Property acquired from a decedent will receive date of death fair market value, or “stepped up” basis.
- Permanent repeal of the state death tax credit
- Repeals the sunset of the estate, gift, and GST tax provisions for years after 2010
The bill now must go through the Senate for approval, which is unlikely to happen by the end of 2009 as the Senate is currently busy with health care reform. Even if the Senate is able to review the bill by the end of the year, it is unlikely that the Senate would approve all provisions of the bill. One problem is that the $3.5 million estate tax exemption limit is not indexed for inflation in the bill. It appears the Senate may favor raising the exemption to $5 million and reducing the estate tax rate to 35%.
If the Senate does not take any action regarding this bill by the end of the year, the estate tax would lapse for 2010 and return at a rate of 55% in 2011 under current legislation. In an attempt to prevent the estate tax from lapsing in 2010, the House drafted legislation on December 15, 2009 for a two month extension of the 2009 estate tax law which they are hoping to attach to another bill to go to the Senate before year-end. It is questionable whether such an extension would be approved due to opposing views within the Senate regarding the estate tax. It is appearing more likely at this time that the estate tax will expire after December 31, 2009 and be restored retroactively in 2010 by Congress.
We will continue to monitor the estate tax legislation. If you like to discuss how the estate tax legislation would affect you, please call our offices at (215) 665-3960 and ask to speak to one of our shareholders or email us at info@taxwarriors.com.