• Federal Estate Taxes - Where We Are, How We Got Here and Where We're Going
  • October 6, 2010 | Author: Julie Ann Garber
  • Law Firm: Becker & Poliakoff, P.A. - Fort Myers Office
  • If you're confused about what has been going on lately with federal estate taxes, don't be.  Here is a summary of where federal estate taxes are today, how they got here, and where they're going.

    1. Where federal estate taxes are today.  On January 1, 2010, federal estate taxes were officially repealed.  Since then Congress has done nothing to reinstate the tax, and so today there is still no federal estate tax

    2. How federal estate taxes got repealed.  How did we get to full repeal of federal estate taxes?  Under provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), signed into law by President George W. Bush in June 2001, the federal estate tax exemption gradually increased from $1 million to $3.5 million in 2009, while the estate tax rate decreased from 55% to 45%.  EGTRRA also called for full repeal of federal estate taxes on January 1, 2010.  Of course, last year no one believed that Congress would really let full repeal happen, but low and behold, after much discussion and debate over several bills, in the end Congress couldn't agree and so federal estate taxes were repealed effective for deaths occurring on or after January 1, 2010.

    3. Where federal estate taxes will go from here.  Here's the real kicker - due to the inability of Congress to make the provisions of EGTRRA permanent, the law will sunset on January 1, 2011.  What does this mean?  On January 1 , 2011, federal estate taxes will come back under the laws that were in effect prior to the enactment of EGTRRA, resulting in a mere $1 million federal estate tax exemption and whopping 55% tax rate.

    Of course, when Congress let the federal estate tax die at the beginning of this year, everyone thought that they would act quickly to reinstate the tax retroactively back to January 1.  But here it is, September 29, and we've still got no federal estate taxes.  Once again, there have been several bills introduced and lots of discussion and debate, but no action, and as the days of 2010 continue to fly by, Congress will have to wait until after the November elections to address the estate tax, setting up the same scenario as last year - at the eleventh hour either something will be done, or it won't.

    What do I think Congress wiill do?  Nothing.  Meaning on January 1, 2011, the federal estate tax will return with a $1 million and 55% tax rate.  Granted, this is only my opinion, but a majority of my estate planning colleagues and the general public agree based on a straw poll I conducted in July that is still up and running and can be viewed by visiting What Do You Think Congress Will Do With Estate Taxes in 2010?

    So what should you do?  Get prepared, very prepared, for federal estate taxes to return on January 1, 2011.