Will Billionaire Dan Duncan’s Estate Pass Free of Federal Estate Tax?

Professor Gerry Beyer (Wills, Trusts & Estates Prof Blog) links today to Scott Martin’s post, Billionaire’s Heirs First to Win 2010 Estate Tax Jackpot on The Trust Advisor Blog.

Dan Duncan is the first billionaire to die during the repeal of the federal estate tax.  Prof. Beyer notes:

If Congress reinstated the death tax for 2010 and made it retroactive for the year, Dan Duncan’s estate would generate up to $4 billion for the IRS. Although this seems to be a strong incentive for Congress pass a retroactive reinstatement, The Trust Advisor Blog predicts that Duncan’s death will actually have the opposite effect.

Will Congress retroactively restore the federal estate tax for 2010?  Scott Martin proposes that the deaths of individuals leaving large estates make it less and less likely that Congress will reinstate the estate tax for 2010:

. . . probate gurus say the sheer amount of money on the table makes a retroactive tax more unlikely. Big estates mean big lawyers ready to fight to see those billions of dollars go to the deceased’s heirs, and the headaches could go on for years. 

Planning an estate under the current 2010 rules (no estate tax; modified carryover basis rules) differs significantly from planning an estate if there is an estate tax and "traditional" basis rules.  As things currently stand, I draft estate plans to work under the current 2010 rules and at the same time build in flexibility in case Congress restores the estate tax for 2010.  Many estate planners are taking the same approach.

Congress has returned from its recess — and I have returned from my blogging break. 

I’ll keep you posted.

House Passes Pomeroy Bill HR 4154

Today the House passed HR 4154 to make permanent the $3.5 million individual federal estate tax exemption and 45% federal gift and estate tax rate (and to avoid the scheduled repeal of the federal estate tax in 2010).  It appears that all Republicans and 26 Democrats voted against the bill — I will update this information if my numbers are off.  From what I hear from others closer to Washington, the Senate won’t pass the bill without significant changes.  Chances are there isn’t time to do this by the end of the year.

According to an article by Arthur D. Postal today in National Underwriter Life and Health Insurance News:

Observers expect the Senate to pass a measure that will merely extend the current rate on a temporary basis. The Senate probably will deal with the issue when it works on comprehensive tax reform legislation in 2010.

Although the House acted today, the future of the federal estate tax is still anybody’s guess.

House to Vote Soon on HR 4154

Today, OMB Watch posted House Set to Vote on Pomeroy Estate Tax Bill by Gary Therkildsen

According to the article, we could see a vote on H.R. 4154 as early as tomorrow.  (Admittedly, some of us were disappointed not to see a vote today.)   The OMB Watch article summarizes and provides links to:

H.R. 4154 provides for a $3.5 million federal estate tax exemption for individuals ($7 million per couple) and sets the federal gift and estate tax rates at 45%.  Therkildsen reports that the Center on Budget and Policy Priorities finds the Pomeroy bill "more than reasonable" and Citizens for Tax Justice "concludes that H.R. 4154 is somewhere in the middle of the spectrum between good and bad tax policy."

Therkildsen also reports:

On the other side of the debate, legislators looking to further reduce or eliminate the estate tax are preparing to introduce their legislation as well. A bi-partisan bill (H.R. 3905) sponsored by Rep. Shelley Berkley (D-NV), which almost mirrors a Senate proposal introduced by Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ), would reduce the estate tax to a $10 million per couple exemption at a 35 percent rate.

Stay tuned!

House Could Vote Wednesday on Estate Tax Legislation

Hani Sarji, an LL.M. candidate in Tax at New York Law School, is keeping track of Congress’s increased activity to do something about the federal estate tax before the end of the year on his blog  — Future of the Federal Estate Tax.  Hani Sarji recently provided a link to a Dow Jones Newswires article by Martin Vaughan (US House To Vote On Permanent Estate Tax Bill Next Week) that reports that the House will vote on a new bill:

The U.S. House of Representatives next week will vote on legislation to extend current estate tax rates permanently, but when and what action the Senate might take on the bill remains unclear.

The House will vote next week, Wednesday at the earliest, on estate tax legislation from Rep. Earl Pomeroy (D., N.D.), according to a schedule released by House Democratic leaders.

The Pomeroy bill would make permanent a 45% rate on inherited wealth, with the first $3.5 million exempt from the tax. Without congressional action, the tax will be repealed in 2010 and return in 2011 at a 55% rate with a $1 million exemption.

The Pomeroy bill appears to be HR 4154, which is the second estate tax bill introduced by Representative Pomeroy this year.  This bill — known as the "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009" — does the following:

  • repeals the new carryover basis rules
  • retains the estate tax
  • provides for a $3.5 million exemption
  • freezes estate and gift tax rates at 45%

Check here for Hani Sarji’s updated list of all the estate tax bills introduced in Congress this year.

New Bills Aim to Restore Estate Tax in 2010

On October 22nd, Rep. Berkley (D-NY) introduced H.R. 3905 to "amend the Internal Revenue Code of 1986 to repeal the 1-year termination of the estate tax, to increase the estate and gift tax unified credit, and to coordinate a reduction in the maximum rate of tax with a phaseout of the deduction for State death taxes."

  • The bill increases the federal estate tax exemption from $3,650,000 in 2010 to $5,000,000 in 2019 and thereafter.  The bill decreases the maximum tax rate from 44% in 2010 to 35% in 2019 and thereafter.

On October 15, 2009, Rep. Schrader (D-OR) introduced H.R. 3841 (pdf) "[t]o amend the Internal Revenue Code of 1986 to repeal carryover basis for decedents dying in 2009, to increase the estate tax exemption to $5,000,000, and to reduce the maximum estate and gift tax rate to 45 percent."

Upcoming Seminar: Presence and Ethics at the End of Life

On November 12th, I will be giving a Silicon Valley Bar Association seminar on Preparing for Dying: Presence and Ethics at the End of Life with sociologist and filmmaker Dr. Michelle Peticolas and estate planning attorney Deborah Radin of Kramer Radin, LLP.  

We will begin the seminar by watching Dr. Peticolas’s award-winning documentary, Caring for Dying: the Art of Being Present.  You can view a trailer for the film here

Deborah Radin will cover the benefits of using advance health care directives to make decisions about the end-of-life.  She will also discuss what an "ethical will" is and how individuals can use ethical wills to transfer their personal values, history and legacy. 

I will discuss estate planning ethical issues and rules of professional conduct when representing a client at the end of life.  If you are an estate planning attorney who has worked with clients in hospice, you are aware that there are numerous ethical issues, including knowing who the client is, undue influence, and capacity.  I plan to cover these and other topics.

Attorneys will receive one hour of ethics credit for attending the seminar.  You can register for the event through the Silicon Valley Bar Association.

Estate Tax Set to Expire (Temporarily) as Congress Waits

As we enter the last quarter of 2009, the future of the federal estate tax remains uncertain. 

  • Will the estate tax be repealed for a year in 2010?  (Doubtful.) 
  • Will Congress enact major tax legislation by the end of 2009?  (Also doubtful — more likely, we will see a one-year fix to avoid repeal in 2010.) 
  • Will the federal estate tax exemption revert to $1,000,000 in 2011 or will Congress increase the exemption, perhaps by freezing the exemption at 2009 levels as suggested by the Obama administration?  (A couple months ago I predicted a $3.5 million exemption, but I have to admit that suspense about this question is building.) 
  • Will the top tax rate be 55% or 45%?  (Probably 45% in 2010 (the one-year quick fix), but who knows about 2011!)

An article appearing in the WSJ —  Estate Tax Faces Its Own Life-and-Death Struggle — provides a status report:

President Barack Obama and congressional Democrats are united behind an effort to block a scheduled year-end repeal of the estate tax. But prospects are blurred by divisions between the House and Senate over the contours of a restored tax, as well as Capitol Hill’s focus on health care . . . .

Officially, Republicans in Congress would like to see it disappear on schedule. . . .  But very few believe that is possible. . . .

[S]harply different bills in the House and Senate could make a long-term solution elusive. With health care and routine spending bills jamming the Senate calendar, an estate-tax fight — first on the Senate floor, then with the House — could make passage of a bill virtually impossible this year, House and Senate aides say. Lawmakers likely would fall back on a one-year extension of the current rate and exemption and leave the fight to next year. . . .

Even [Democratic Senator Blanche Lincoln of Arkansas, who is up for re-election in a state where opposition to the estate tax is solid,] has her eyes elsewhere. ‘Our complete focus is on health care,’ said Ben Portis, a spokesman for the senator. ‘On the estate tax, there will be a time and place.’

Thank you to Professor Paul Caron, author of the Tax Prof Blog, for posting a summary of the WSJ article earlier today.

Short-Term Fix to Estate Tax Seems More Likely

David Shulman writes today in his South Florida Estate Planning Law blog about an article from The Hill that adds to the growing speculation that Congress will enact a one-year extension of current estate tax rates and postpone a permanent fix until next year: 

A split among Democrats and a busy fall agenda is likely to have lawmakers hold off this year on debating the future of the estate tax, even though it expires at the end of the year.

Experts and aides say a more realistic scenario involves Congress passing a one-year extension and then tackling the issue as part of broader tax reform next year.

Representative Pomeroy is holding out hope that there is time to enact new estate tax legislation this year:

Rep. Earl Pomeroy (D-N.D.), a senior member of the House Ways and Means Committee, said that the House tax-writing panel should consider a long-term solution this month or in October.

Pomeroy said lawmakers should do “something meaningful with the estate tax issue for the American people and eliminate the uncertainty of the present tax code.” Pomeroy said he has been asked by Ways and Means Committee Chairman Charles Rangel (D-N.Y.) to prepare new estate tax legislation for the panel.


September 7520 Rate Remains Low

Federal interest rates for September (pdf) are still very, very low.  The Section 7520 rate remains at 3.4% for a third month in a row.  Likewise, applicable federal rates remain low — the mid-term rate (a 3 to 9 year term) is 2.87% (annual compounding).

Individuals who want to take advantage of low interest rates and low asset values should consider using one or more of the following estate and gift tax planning vehicles:

  • a grantor retained annuity trust (a "GRAT")
  • an installment sale to a grantor trust
  • a qualified personal residence trust (a "QPRT")
  • a charitable lead annuity trust

There is talk among some estate planning commentators that we are unlikely to see legislation enacting a 10-year minimum GRAT as proposed in the Greenbook.  These commentators explain that the ten year minimum can be easily defeated by using a steeply declining GRAT.