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December 23, 2009

Update on Estate Taxes

Guest Author Pilar Puerto discusses Estate Taxes:

 

On December 3, 2009, the house approved H.R. 4154, which would make the current estate, gift, and generation skipping transfer (GST) tax laws permanent.  As background, under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estatetax was scheduled to be gradually phased out by increasing the applicable exemption amount each year up to $3.5 million in 2009 and then repealing in 2010. It is now the end of 2009 and unless Congress passes another act, in 2011 the estate tax provisions will revert to pre-2001 law. This would mean decreasing the unified credit exemption amount for estate tax purposes from the current $3.5 million to $1 million. But, lately there has been much debate and action in Congress for the passing of an estate tax bill.  And, up to this point there has been much speculation and uncertainty as to what the estate tax laws would look like.  But, now with the house’s approval of H.R. 4154 we have a better picture of what the future holds.

 

H.R. 4154 would make permanent the current unified credit effective exemption amount of $3.5 million for estate tax purposes to apply to estates of decedents dying during 2010 and later years. As to gift taxes, the unified credit effective exemption amount would remain at $1 million. And, the highest estateand gift tax rate would be 45%. The GST tax exemption would equal the unified credit effective exemption amount for estate tax purposes and be determined using the highest estate and gift tax rate. 

Considering the high exemption amounts, H.R. 4154 would make it so that only a small percentage of Americans need to worry about paying federal estate tax.  In general, estates are only subject to federal estate tax if they exceed the applicable exclusion amount. For example, under 2009 law only if a decedent’s taxable estate is over $3.5 million—after taking into consideration the unlimited marital deduction—will the decedent’s estate be subject to federal estate tax. Since H.R. 4154 would maintain the applicable exemption amount at $3.5 million, only the most fortunate of Americans need to be concerned about the estate tax.

 

There have been discussions among policy makers, however, on the effects that the estate tax may have on small family businesses, in particular farms.  The argument among these policy makers is that since most of the value of these family businesses is held in illiquid assets, these businesses would be forced to liquidate vital assets just to pay the federal estate tax. But, these concerns are not applicable to most family businesses. A recent report by the Congressional Research Service (CRS) shows that only a small fraction of estates with small or family business interests have paid the estate tax—about 3.5% for businesses in general, and 5% for farmers, compared to 2% for all estates.  CRS also reports that less than ½ of 1% of family-owned businesses that are subject to the estate tax “do not have readily available resources to pay the tax.” Therefore, even if there is a considerable burden on small businesses, this burden only applies to small percentage of these businesses. (RL33070 - Estate Taxes and Family Businesses: Economic Issues)

In sum, it looks like the future will continue to be the same as it is today.  That is, we will have high unified credit exemption amounts that will in turn exclude most estates from having to pay estate tax.  In turn, many will not need to worry about utilizing complicated devices in their estate plan for purposes minimizing the impact of the estate tax on their estates.

See the CRS study attached and the bill.Download Estate Tax - December 2009

Download Legislation - CRS Report

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December 23, 2009

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moncler jacken

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The comments to this entry are closed.

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