In 2001 Congress passed the Economic Growth and Tax Relief Reconciliation Act Of 2001 (“EGTRRA”). EGTRRA established our current 2009 Federal Estate, Gift and Generation Skipping Transfer Tax (“GST”) rates and exemption amounts.
As shown below,
EGTRRA provided for a systematic increase in both the Federal Estate and GST exemption amounts from 2003 through 2009. Though not shown below, EGTRRA also provided for a systematic reduction in the top Federal Estate Tax rate from 55% to 45%. On the plus side, EGTRRA also provided for a Federal Estate and GST “tax-free” year in 2010. On the minus side, under EGTRRA both the Federal Estate and GST taxes are scheduled to come back in 2011 at their pre-EGTRRA amounts ($1,000,000 exemption amount and a top tax rate of 55%).
The last couple of years have been difficult for estate planners because the common assumption has been that there would be a new tax law in effect for 2011. Unfortunately, for many years Congress and the President were unable to come to terms on a viable resolution of the 2011 estate tax problem. Needless to say (and to paraphrase
Aristotle), estate planners, like nature, abhor a vacuum and the lack of guidance for 2011 has created an estate planning vacuum.
Fast forward now to last month and it looks like the vacuum is about to be filled. On May 11, 2009 the Treasury Department published a booklet called “
General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals” (the “Green Book”). As stated in the Green Book, the Obama Administration is offering its own version of “good news/bad news”. The good news is that the Administration is proposing that in 2011 there will not be a roll back of Federal Estate and GST tax rates and exemptions to the pre-EGTRRA rates and exemptions (55% top tax rate and a $1,000,000 exemption amount). Instead, our present 2009 Federal Estate and GST tax rates and exemptions (45% top tax rate and $3,500,000 exemption amount) will apply in 2011 and thereafter.
The bad news is that calendar year 2010 will no longer be free of Federal Estate and GST taxes. Under the Obama Administration’s proposal, Federal Estate and GST taxes will now be imposed in 2010 using the same rates and exemptions as are in effect for 2009 (45% top tax rate and $3,500,000 exemption amount). It is estimated that the extension of the 2009 Federal Estate and GST tax rates and exemptions into 2010 will result in over $3 Billion in additional revenue to the Federal government.
The even worse news is that, according to some experts, the extension of the 2009 Federal Estate and GST tax rates and exemptions into the future may only be for 2010. You must remember that the Federal budgets for fiscal years 2011 and out assume that there is a roll back of the Federal Estate and GST rates and exemptions to those in the pre-EGTRRA period (55% top tax rate and a $1,000,000 exemption amount). Higher maximum tax rates and lower exemption amounts mean increased tax revenue to the Federal government.
Failure to roll the Federal Estate and GST tax rates and exemptions back will leave a huge hole in the federal budget. For Federal budget years of 2012 and beyond the effect of not rolling the Federal Estate and GST rates and exemptions back to those in the pre-EGTRRA period would be a Federal Budget hole in excess of $13 Billion annually. By 2019 the shortfall would be in excess of $29 Billion.
Considering that Federal Fiscal Year 2010 actually begins on October 1, 2009, and also considering everything else that is currently on Congress and the President’s plate (i.e. Iraq, Afghanistan, Pakistan, General Motors, the economy, reform of the banking system, healthcare, a Supreme Court nomination, etc.), most likely only the Federal Estate and GST rates and exemptions for calendar year 2010 will be tackled this year. The Federal Estate and GST rates and exemptions for calendar years 2011 and beyond will probably be put off into 2010 when Congress and the President deal with the Federal budget for Fiscal Year 2011.
For More Information:
Bruce R. Glassman, JD, CPA/PFS
Email: Examiner@AnywhereLegal.com
Website: Anywhere Legal - The Virtual Law Firm
Comments
FACT: Obama promised not to raise taxes of ANY kind on any family that makes less than $250k. But two weeks after his inauguration he raised taxes by 62 cents a pack on the nation’s 43 million smokers.
To see the proof, go to Google and type “obama dover sep” and you’ll see a YouTube video of Obama making this no-tax pledge while speaking in Dover, NH on Sep 12th. Obama is a liar and he keeps on lying. ALL of his plans for healthcare, cap-and-trade, and everything else will significantly increase our taxes and costs for all sorts of goods and services. Just say “NO” to Obama’s socialist agenda.
As I comment in a humorous way in my blog. wwww.taxtales.com This rule unless changed will create all sorts of interesting schemes to take advantage of dying in the year 2010.
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