On June 18, 2010, Jim Gust posted Extenders blocked--what does it mean for estate tax reform? on Trust and Wealth Management Marketing. It is a short post, but it is packed with insight:
- Deficit reduction argument. If one accepts the premise that the tax extenders bill, H.R. 4213, is being blocked because it is not fully paid for, then it is probable that the estate tax rate will be raised. Gust explains, "Any increase in the exemption amount above $1 million, even a restoration to 2009's $3.5 million, will be scored as a serious addition to the deficit. One that benefits only 'the rich.' I don't think it will happen."
- Reasons why H.R. 4213 is being blocked. (1) Deficit reduction argument. (2) Possible reason: “hedge fund managers are successfully heading off a change in the taxation of carried interests, currently treated as capital gains.”
- Looking back: EGTRRA’s changes. Gust writes, “Like nearly all observers of transfer tax policy, I never expected to have a year without federal estate taxes. I thought it was a clever ploy for manipulating the scoring system.”
- Looking ahead: estate tax reform. Gust states that a retroactive fix for 2010 is increasingly unlikely, and explains why $1M exemption and a 55% tax rate in 2011 is increasingly likely.
- Marketing a trusts & estates practice. Gust is already starting to prepare marketing materials for the scheduled tax increase in 2011: “We are preparing marketing materials based on a $1 million exemption in 2011 and later years.”
- Gift tax planning and gift tax return preparation could increase. Gust writes, “[O]nce it becomes crystal clear that there will be no retroactive changes to gift tax rates, I expect a flood of taxable gifts this year to take advantage of the temporary 35% tax rate.”