Estate Tax Legislation Update: One-Year Patch is Increasingly Likely

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The imminent federal estate tax legislation is on everyone’s minds, and it appears increasingly likely that the legislation this year will be a one-year patch, or a one-year freeze of the 2009 rules (a 45% estate tax rate and a $3.5 million exemption).

According to the Association for Advanced Life Underwriting (“AALU”), an important trade and public affairs group, permanent reform is less likely this year and enactment of a one-year patch is the most likely outcome.

Some of the important considerations in the estate tax legislation debate include:

  • Cost. According to congressional analysis, permanent enactment of the 45% estate tax rate and a $3.5 million exemption will “cost” the government $233 billion over 11 years (that is, compared to the 2001 rules which could return in 2011). Given large federal deficits, lawmakers may focus on the estate tax as one area to recover revenues lost through AMT reform, the R&D credit or other law changes.
  • Reunification, portability and indexing. Some of the more thought-provoking issues in the estate tax debate include (1) reunification of the gift and estate tax exemptions, (2) the portability of unused exemption amounts between spouses, and (3) indexing the exemption amounts to inflation.
  • Limitations on lack of control and lack of marketability discounts. Restrictions on the use of discounts are included in the “Pomeroy” bill, currently the leading bill in the House. It is of course unknown at this time whether this provision will be enacted.

The AALU predicts that the Senate debate on the estate tax will extend to mid or late December. We will continue to post updates as new issues arise regarding this legislation.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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