Last summer the Congress came within just a few votes in the Senate of enacting meaningful estate tax reform. Then, when the control of the Congress shifted in the November elections, the prospect of significant reform seemed dim. More recently, there has been some activity in the Senate that provides some basis for guarded optimism. The Senate has been working on its budget resolution. A budget resolution by itself does not make any changes to the tax law. What it can do, however, is to provide room in the budget for tax cuts (or increases) that the particular chamber may be contemplating.
In March, an amendment to the Senate budget resolution proposed by Senator Max Baucus of Montana to extend the 2009 exemption of $3,500,000 and the top rate of 45% through 2012 passed the Senate by a vote of ninety-seven to one. Then, in May, the Senate passed by a vote of fifty-four to forty-one a motion by Senator John Kyl of Arizona to instruct the conferees to plan the budget around a top rate of 35%. Remember, it takes sixty votes to pass this kind of legislation in the Senate. The Senate budget resolution needs to be reconciled with the House resolution, but there does still appear to be some interest in estate tax reform. Unless further estate tax legislation is enacted, here is where things stand through 2010, as of today.
In 2010, the estate and generation-skipping tax are repealed for that year only. The maximum gift tax rate is 35%. In 2011, the estate, gift and generation-skipping taxes will again be as they were in effect prior to 2001. There will be a $1,000,000 lifetime exemption and the maximum rate will be 55%. For 2007, the gift tax annual exclusion amount is $12,000. Given the ongoing uncertainty of where the rates and exemption amounts will ultimately end up, any planning done now must be sufficiently flexible to accommodate a range of possible outcomes.