November 9, 2009

What can accountants and financial advisors tell their clients to expect from Congress with respect to Estate Tax reform? According to a recent article in Trusts & Estates magazine (available at http://trustsandestates.com/wealth_watch/estate-tax-reform1028/), the answer may surprise you. Here are some of the highlights:

There is an increasing possibility that Congress just may do nothing and send us back to the 2001 scenario. Advisors should consider taking immediate action to plan properly for that, and other possible scenarios. Indeed, we have to advise them in 2009 to take into account any number of possible scenarios.

“Everyone” predicted that by 2009 we’d have seen an amendment to the estate tax law. So far, “everyone” was wrong (although, admittedly, there are still almost 2 months left.)

Here’s the current law:

In 2009, we have. . .
$3.5 million generation skipping transfer (GST) tax exemption
$3.5 million exclusion from estate tax
$1 million exclusion from gift tax
45 percent top marginal rate
No state death tax credit

In 2010, there’s supposed to be . . .
No GST tax
No estate tax
$1 million exclusion from gift tax

And in 2011, we’re slated to get . . .
$1 million GST exemption
$1 million exclusion from estate tax
$1 million exclusion from gift tax
55 percent top marginal rate
State death tax credit reappears

Bear in mind that this does NOT address the state’s ‘take’ on estate taxes (i.e. New Jersey’s estate tax exemption is STILL at the pre-EGTRRA level of $675,000.00)

What will happen? Here are some possibilities:

· Congress will do nothing.

· Congress will enact a one-year extension of the 2009 law through 2010 only.

· Congress will enact a one-year extension of the 2009 law and make significant estate tax law changes in 2010 to extend permanently, or make significant estate tax law changes in 2009 to extend permanently, including:

-making the 2009 law permanent;

-reducing or increasing the various exclusions;

-unifying the gift and estate exclusions;

-reinstating the state death tax credit.

Planning in such an unpredictable climate requires the implementation of flexibility in estate plans, the use ofcreativity in maximizing exemptions & deductions, all whilekeeping an eye on Congress for any last minute reform.