The estate tax is set to be repealed on January 1, 2010, as part of legislation enacted in 2001, which implemented a gradual increase in the estate tax exemption amount and reduction of estate tax rates. For the next week or so, the dead can shelter $3.5 million from estate tax and then pay 45% on the rest. In 2011, that exemption returns to $1 million and 55%.
What will this mean? Most likely, nothing. Congress has been way too busy with healthcare to deal with this issue, especially since the tax generates relatively little revenue. But this issue is a mess for the estate planning of those high net worth folks who tend to contribute to political campaigns and issues. While the estate tax goes away, the carry-over basis rules step in. Congress has tried that before. It doesn’t work. In the spring, Congress will likely reinstate the estate tax to 2010 levels and make it retroactive to January 1, 2010. We’ll have to see where Congress goes from there.
What should you do? Bay Area residents will likely have a net worth of over $1 million when they die, so you need to pay attention to what happens and be in contact with your estate planning attorney. Those folks with parents on life support with estates greater than $5 million might have some opportunities here, but for most of us, no need to kill off those aging relatives next year and no need to panic about your estate plan.
