A Clue to President Obama's Estate Tax Proposal
The estate tax is back in the news.
First, let's review the current law: If someone dies in 2009, there is a federal estate tax on the portion of the individual's taxable estate that is above $3.5 million. (The exemption is adjusted if the individual made taxable gifts during his or her lifetime.) The top rate for the federal estate tax in 2009 is 45%. In other words, an individual who dies in 2009 can pass $3.5 million free of federal estate tax. If both husband and wife die in 2009, the couple can pass $7 million free of federal estate tax (depending on the structure of their estate plan). The federal estate tax is scheduled to disappear for one year in 2010 only to return in 2011 at a $1 million federal estate tax exemption and a 55% top estate tax rate.
For the past couple of years, you would have been hard pressed to find someone who actually thought that Congress would stand by and let the 2010 repeal happen. But what the new federal estate tax laws would look like has been anybody's guess.
President Obama has said that his administration will propose new federal estate tax laws this year, but what will they look like? A clue appears near the end of the President's new budget. If you take a look at footnote 1 on page 121 near the end of the budget (pdf), you will see that it is based on the assumption that "the estate tax is maintained at its 2009 parameters." The details of the Obama administration's estate tax proposal are not yet known, but the footnote indicates that the President will propose making the 2009 laws permanent, with a $3.5 million exemption and a 45% top estate tax rate.
Of course, there other aspects of the estate tax that Congress will need to hammer out in addition to the exemption amount and the tax rate -- for example, will a surviving spouse be allowed to use the deceased spouse's unused federal estate tax exemption? Congress may also turn its attention to other tax issues relating to the transfer of assets -- will the lifetime gift tax exemption remain at $1 million? will zeroed out GRATs survive? what about QPRTs? will Congress limit the number of generations that assets can pass free of tax in perpetual trusts? Stay tuned!
