As of the date of this newsletter, Congress has not acted on estate tax reform. In 2009, the estate tax exemption is $3,500,000, but the gift tax exemption is only $1,000,000. The maximum estate tax rate is 45%. In 2010, the estate tax is scheduled to be eliminated, but the gift tax exemption remains at $1,000,000. Do not make gifts on the assumption that there is no transfer tax. In 2011, the estate tax returns, with a $1,000,000 exemption and a 55% maximum estate tax rate. Common wisdom appears to be that Congress will simply extend the 2009 rules to 2010 until it focuses on a more complete reform package.
It has been anticipated that the complete package will address the estate tax exemption, the disconnect between the estate and gift tax exemptions, the estate tax rate, and the subject of discounts in the context of family businesses. At the moment, the plan favored by President Obama would provide a $3,500,000 exemption amount indexed for inflation, but not portable between spouses. He would leave the lifetime gift tax exemption amount at $1,000,000. The top rate would be 45%. His current proposal does not seek to limit valuation discounts. We will keep you posted.