Repeal of Estate Tax Likely to be Short-Lived
As December 31 came and went, so did the federal estate tax - or at least for the time being. The estate tax, or the "death tax" as it is more affectionately known, is a tax imposed on the property and assets (i.e. "the estate") that an individual leaves behind at death. Under 2009 rates, the first $3.5 million of the estate was exempt from the tax while any amount over this was taxed at 45 percent.
Despite last minute efforts by key members of the House of Representatives, a bill that would have reinstated the federal estate tax permanently at 2009 rates did not pass the Senate. In fact, HR 4154 never made it past the first reading in the Senate, where the focus for the last month has been on passing the health care reform bill. As a result, the estate tax was repealed effective January 1, 2010.
However, if action is not taken to make the repeal permanent or to set a new estate tax rate and exemption level by December 31, 2010, the estate tax will return to pre-2001 levels in 2011, which would mean a $1 million exemption and 55 percent estate tax.
The current repeal of the estate tax stems from legislation passed during former President George W. Bush's first term in office. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), over the past 10 years the federal estate tax has been scaled down. Many commentators believed Congress would take action well in advance of the December 31 deadline to save the tax, but the legislation kept getting pushed behind higher priority bills.
Congress Promises Action
Even though the estate tax is supposed to be gone for the entire year, certain members of the House are promising to take action early this year to bring the tax back, and not just for 2011. Some Congressional members have stated that they will make any estate tax legislation retroactive to January 1, 2010, meaning that the yet-to-be-determined tax rate and exemption level will apply to all estates that passed tax-free from the beginning of the year.
The estate tax has long been reviewed as controversial - both by those wishing to save it and those who want to make it go away. Republicans have been traditionally opposed to the tax. They argue the estate tax is a double-tax, since the assets are taxed once during the individual's lifetime and then again at death.
Democrats, on the other hand, point out that the tax only affects the wealthiest of Americans, with less than one percent of estates paying the tax in 2009. They also argue that the tax is vital to the federal government, which netted $25 billion last year from estate taxes alone.
The issue, however, is not divided cleanly down party lines. Some key Democrats in the Senate have joined Republicans in opposition to the tax. While these members do not support a permanent repeal of the estate tax, they are in favor of decreasing the federal tax rate to 35 percent and increasing the exemption level to $5 million.
Some speculate that this division between House and Senate Democrats may make it difficult to pass temporary legislation to bring the tax back in 2010. Others, however, believe that Congress will be successful in passing some temporary legislation to reinstate the tax for 2010.
ABOUT THE AUTHOR: Michael Connors
Born in 1950 on the Upper East Side of Manhattan. His family moved to Bay Ridge, Brooklyn, in 1954, and he remains there today with his wife and son. After his 1972 graduation from Pace University, Mr. Connors served in the United States Army with the Military Police in Germany. Upon his honorable discharge he enrolled in Brooklyn Law School, and graduated in 1979 (Magister: Phi Delta Phi, 1978-1979). Mr. Connors opened his private practice in Bay Ridge in 1981 and formed Connors and Sullivan in 1986. He specializes in Trusts and Estates with a strong emphasis in Estate Planning and Elder Law.
Copyright Connors And Sullivan Attorneys At Law, PLLC
More information about Connors And Sullivan Attorneys At Law, PLLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
However, if action is not taken to make the repeal permanent or to set a new estate tax rate and exemption level by December 31, 2010, the estate tax will return to pre-2001 levels in 2011, which would mean a $1 million exemption and 55 percent estate tax.
The current repeal of the estate tax stems from legislation passed during former President George W. Bush's first term in office. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), over the past 10 years the federal estate tax has been scaled down. Many commentators believed Congress would take action well in advance of the December 31 deadline to save the tax, but the legislation kept getting pushed behind higher priority bills.
Congress Promises Action
Even though the estate tax is supposed to be gone for the entire year, certain members of the House are promising to take action early this year to bring the tax back, and not just for 2011. Some Congressional members have stated that they will make any estate tax legislation retroactive to January 1, 2010, meaning that the yet-to-be-determined tax rate and exemption level will apply to all estates that passed tax-free from the beginning of the year.
The estate tax has long been reviewed as controversial - both by those wishing to save it and those who want to make it go away. Republicans have been traditionally opposed to the tax. They argue the estate tax is a double-tax, since the assets are taxed once during the individual's lifetime and then again at death.
Democrats, on the other hand, point out that the tax only affects the wealthiest of Americans, with less than one percent of estates paying the tax in 2009. They also argue that the tax is vital to the federal government, which netted $25 billion last year from estate taxes alone.
The issue, however, is not divided cleanly down party lines. Some key Democrats in the Senate have joined Republicans in opposition to the tax. While these members do not support a permanent repeal of the estate tax, they are in favor of decreasing the federal tax rate to 35 percent and increasing the exemption level to $5 million.
Some speculate that this division between House and Senate Democrats may make it difficult to pass temporary legislation to bring the tax back in 2010. Others, however, believe that Congress will be successful in passing some temporary legislation to reinstate the tax for 2010.
ABOUT THE AUTHOR: Michael Connors
Born in 1950 on the Upper East Side of Manhattan. His family moved to Bay Ridge, Brooklyn, in 1954, and he remains there today with his wife and son. After his 1972 graduation from Pace University, Mr. Connors served in the United States Army with the Military Police in Germany. Upon his honorable discharge he enrolled in Brooklyn Law School, and graduated in 1979 (Magister: Phi Delta Phi, 1978-1979). Mr. Connors opened his private practice in Bay Ridge in 1981 and formed Connors and Sullivan in 1986. He specializes in Trusts and Estates with a strong emphasis in Estate Planning and Elder Law.
Copyright Connors And Sullivan Attorneys At Law, PLLC
More information about Connors And Sullivan Attorneys At Law, PLLC
View all articles published by Connors And Sullivan Attorneys At Law, PLLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
