Sen. Baucus Moves to Make 2009 Estate Tax Levels Permanent
Senate Finance Chair Max Baucus (D-MT) has introduced a bill to make the 2009 federal estate tax levels permanent, to unify the estate tax and gift tax, and to allow transfer of a deceased spouse's unused unified credit to the surviving spouse. The bill -- the “Taxpayer Certainty and Relief Act of 2009”(pdf) -- deals with numerous other tax issues as well, including individual tax rates, the child tax credit, marriage penalty relief, and the alternative minimum tax.
Under current law, in 2009, the federal estate tax exemption is $3.5 million, the lifetime gift tax exemption is $1 million, and the top federal estate and gift tax rate is 45%. The federal estate tax is set to be "repealed" for one year in 2010 and will return in 2011 with a $1 million federal estate tax exemption and a 55% top tax rate. Current law makes no provision for "portability" of a deceased spouse's unused exemption. In other words, if Fred dies with a taxable estate that is less than his federal estate tax exemption, Fred's excess exemption amount is lost and Wilma can't use it.
What the Bill says:
- Section 301 of the Bill unifies the estate tax and the gift tax. In other words, the federal estate tax exemption and the gift tax exemption would be the same. Instead of a $3.5 million estate tax exemption and a $1 million gift tax exemption, both the estate tax and the gift tax exemptions would be $3.5 million.
- Section 301 of the Bill sets the federal estate tax exemption at $3.5 million, adjusted for inflation, and sets the top tax rate at 45%.
- Section 302 of the Bill creates portability of the deceased spouse's unused exemption.
Attorney Juan C. Alvarez discusses portability under the Bill in his Florida Probate & Trust Litigation Blog. Attorney Greg Herman-Giddes also discusses the ramifications of portability in his North Carolina Estate Planning Blog.
Portability is not automatic. The Bill requires the executor of the deceased spouse's estate to make an election on a timely filed federal estate tax return. If Fred's taxable estate is $2 million and his executor makes a timely election, then, under the Bill, Wilma's exemption for estate and gift tax purposes is her $3.5 million plus Fred's unused $1.5 million. At a tax rate of 45%, the portability of Fred's unused exemption allows Wilma to pass an additional $675,000 free of federal estate or gift tax.
