The estate tax is still scheduled to go away for one year during 2010. Nobody ever expected that to happen but to date no legislation has been enacted to prevent it from happening. On December 3, 2009, the House of Representatives passed H.R. 4154, The Permanent Estate Tax Relief For Families, Farmers and Small Businesses Act of 2009. Essentially, this bill simply makes permanent the 2009 estate and gift tax rules. For estate tax and generation skipping tax purposes, the lifetime exemption amount will remain at $3,500,000 and the top rate will be 45% as currently in effect. We were disappointed that the gift tax lifetime exemption also remains at its currently level of $1,000,000. While many had hoped this exemption would be re-unified with the estate tax exemption at $3,500,000, such a provision is not contained in the House bill. There had also been some earlier talk of making the lifetime estate and generation skipping tax exemption portable between spouses so that any exemption not used by the first spouse to die would carry over to the other spouse. That provision is also not a part of H.R. 4154.
It is not clear that the Senate’s schedule will permit it to consider estate tax legislation before the end of the year. Even if legislation is not enacted until some time in 2010, we expect it will be made retroactive to January 1, although there has been a fair amount of debate as to whether such a law can be made effective retroactively. There is still some hope that the Senate may produce a bill that is more favorable to high net worth families.
On a related note, the IRS has announced that the gift tax annual exclusion amount will remain at its current level of $13,000 per donee through 2010 ($26,000 per donee for married couples who split gifts or make gifts from community property). Take this as a reminder to make your annual exclusion gifts for 2009, if you have not already done so. Remember that these gifts must be of a “present interest” so gifts in trust only qualify if the beneficiary has the “Crummey” power to withdraw the gift amount. Please let us know if you need notification letters prepared for any trust beneficiaries.