You might be wondering what the future of the estate tax will be. Below, I have aggregated the predictions of others. Please note that (1) the items are listed chronologically, and (2) the writers will probably change their forecasts based on current events. Also, keep in mind John Taylor’s observation regarding predicting what Congress will do: “If you can predict what Congress will do, there is a future for you in broadcast journalism.” John R. Taylor, Estate Tax Planning In State Of Flux, Fort Smith Times Record, Aug. 1, 2010.
Kevin McCormally, FAQs on the Death of the Estate Tax, Kiplinger, Dec. 18, 2009.
We expect that during 2010 (probably early in the year rather than later), Congress will retroactively reinstate the federal estate tax in a form very similar to the law that applies for 2009 -- that is, with a $3.5-million exemption (effectively $7 million for married couples) and a rate of 45%. It's possible that the exemption amount may increase, to as high as $5 million per person ($10 million for married couples), and the rate might be cut to as low as 35%.
Possible One-Year Elimination of Estate and Generation-Skipping Transfer Tax in 2010: Going, Going, Gone?, Katten Muchin Rosenman LLP, Dec. 23, 2009.
If Congress does not act on the federal estate and GST taxes before they recess, it is expected that they will act after the new year to reinstate the taxes and that they may attempt to make them retroactive to January 1. Congress’s ability to impose these taxes retroactively is not free from doubt.
Carter Ruml, Forecasting the Fate of the Estate Tax, KYEstates.com, Mar. 12, 2010.
Legislation retroactive to January 1 will not happen. . . . Further, nothing will happen on the estate tax until after the midterms (at the earliest), or, more likely, in early January 2011. . . . while they wait for EGTRRA to run its full course to its bizarre and unexpected result, both parties can leverage angst over the estate tax into increased campaign contributions.
Deborah L. Jacobs, Estate Tax Could Come Back With Sharp Bite, Forbes.com, Apr. 18, 2010.
Next year many more families may need to worry about federal estate tax and at the same time could have fewer ways to minimize its bite. In fact, the past decade may come to be looked upon as the golden era of wealth transfer.
Some of the changes that could take place next year are already built into the law. Others could emerge through a revenue-driven form of creeping estate tax reform, rather than through a comprehensive thoroughly debated overhaul of the federal estate tax. . . .
Restrictions on GRATs or family partnerships--or both--will deal taxpayers a double whammy. The most obvious impact will be on the ultra-wealthy, who have used them the most. But if the estate tax exemption reverts to $1 million, many more families will be looking for ways to minimize the taxable value of assets transferred to the next generation.
If these restrictive provisions are used as "revenue raisers" to bills like H.R. 4849, which do not otherwise involve estate tax reform, the effect will be even more profound.
Moreover, once these planning techniques are eliminated, what can proponents of a higher estate tax exemption amount offer? Without the GRAT or the family partnership, they will have lost their primary bargaining chips. The $1 million exemption amount and 55% tax rate will take hold by default. Those who were only too happy to see the estate tax expire in 2010 may well live to regret it.
Martin M. Shenkman, Taxpayers Keep Fiddling While Tax Bennies are Burning, LawEasy.com, July 12, 2010.
Higher Tax Rates: No surprise what is coming around the corner on this issue. Plan for higher rates now.
Ronald A. Fatoullah and Stacey Meshnick, As Senate deal breaks down – probability of $1M estate tax exemption rises, Queens Courier, July 17, 2010.
It seems unlikely that we will see any estate tax legislation before the November elections, and that retroactive legislation becomes less likely every day.
Julie Garber, Estate Tax Repeal Update - Rep. Sanchez Introduces Super Progressive Estate Tax Bill in the House, Julie's Wills & Estate Planning Blog, July 21, 2010.
As I've said before, don't hold your breathe on this bill and its companion in the Senate, or any other bills for that matter. Count on the federal estate tax to return in 2011 with a $1 million estate tax exemption and 55% estate tax rate.
Kevin Staker, Senate Vote to Repeal Estate Tax Fails, 39-59, Estate Tax News Blog by Kevin Staker, July 22, 2010.
I believe one thing is clear. The estate tax is coming back. This was a perfect opportunity for the Senate to repeal the estate tax and they did not. The only question now is what is the exemption and what are the rates going to be?
Ronald D. Aucutt, Estate Tax Changes in the Obama Administration, McGuireWoods LLP, July 23, 2010. (Underlining added.)
Clues for the Future . . .
- Tax decreases (if any) may be phased in over a number of years, in order to contain the cost by pushing the revenue losses out as far as possible in the ten year “budget window.” . . .
- After any phase-in period, exemptions (and brackets, if any) may be indexed for inflation. . . .
- The GST exemption and rate will remain tied to the estate tax exemption and rate, whatever they are. The gift tax exemption and rates may be recoupled with the estate tax and GST exemptions and rates, although this is instinctively a fragile feature that could be jettisoned. . . .
- The credit for state death taxes is not coming back, and even retention of the deduction for state death taxes is doubtful. . . .
- Portability between spouses of the exemption/unified credit seems to have caught on as a concept and, subject to resolution of technical issues, may be a part of any package. It is particularly compelling as a way to provide “middle class” relief at the low end and middle of the range of taxable estates. . . .
- Significant relief “targeted” to family farms, ranches, and other businesses –- such as the increase in the special use valuation cap in S. 722 and S. 3533 – is a strong possibility.
- A stepped-up basis at death (for appreciated assets) will continue to be the general rule.
- Although “artificial sweeteners” with no direct connection to the estate tax (extension of expired provisions, increase in the minimum wage, relief for the timber industry, and the like) failed to attract the necessary 60 votes in the Senate, some “natural sweeteners” more directly related to the estate tax might be considered.
Mark Schoeff Jr., Congress likely to punt on estate tax until fall – or later, InvesmentNews, July 28, 2010.
As Congress heads toward its summer recess, it looks unlikely that legislators will make progress until September — or perhaps even after the midterm election in November — on the estate tax.
Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, quoted in Mark Schoeff Jr., InvesmentNews, Congress likely to punt on estate tax until fall – or later, July 28, 2010.
The Senate is probably going to limp into the August recess, accomplishing nothing with respect to taxes . . . This uncertainty is going to continue until the end of September. It might continue until December.
Julie Garber, Estate Tax Straw Poll - The Results Are In, Julie's Wills & Estate Planning Blog, July 30, 2010. (Emphasis added.)
I enjoyed reading Hani Sarji's collection of predictions about the federal estate tax so much that I decided to conduct my own "straw poll" on what my fellow estate planning colleagues think Congress will do with the federal estate tax in 2010. To conduct the poll I sent the following email to over 50 attorneys, trust officers and accountants located throughout the U.S.
[Below, are Julie Garber’s poll question and results, which I am presenting in a table format.]
What do you think Congress is going to do with the estate tax in 2010?
Results
A. Nothing, tax will come back on Jan. 1, 2011 with $1 million exemption, 55% tax rate
68% chose A
B. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and make it retroactive to Jan. 1, 2010
11% chose B
C. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and not make it retroactive to Jan. 1, 2010
7% chose C
D. Reinstate tax at 2009 levels ($3.5 million exemption, 45% rate) and give heirs of decedents who die in 2010 but prior to enactment of the new law the choice between using the modified carryover basis and the new law
7% chose D
E. Something else - please describe"
7% chose E
Steve Jacobson, a partner at West & Feinberg, P.C., located in Bethesda, Maryland, quoted in Julie Garber, Estate Tax Straw Poll - The Results Are In, Julie's Wills & Estate Planning Blog, July 30, 2010.
Nothing is what they do best.
Rania Combs, Confidence in Estate Tax Fix is Waning, Texas Wills & Trusts Online, Aug. 2, 2010.
Time is running out . . .
According to Julie Garber’s Estate Tax Straw Poll – The Results Are In, more than two thirds of the attorneys, trust officers and accountants she polled believed that Congress would do nothing this year. . . .
The consensus is that Congress will not act.
I’m still hopeful, but I’m not holding my breath.
Deborah L. Jacobs, Seven Steps For 2010 Heirs, Forbes.com, Aug. 23, 2010.
To further complicate matters, there's a possibility--though as the year wears on it seems increasingly remote--that Congress will restore the tax retroactively with the same $3.5 million exemption and 45% top rate that existed in 2009. Past court cases suggest that is perfectly legal. But some people with a lot at stake have argued that a retroactive tax is unconstitutional and threatened lawsuits. With the prospect of litigation looming, any legislation that takes effect in 2010 would almost certainly need to offer a choice for heirs of people who die this year: Pay estate tax, or use the modified carryover basis system that's in effect while there is no estate tax.
Robert L. Moshman, Bracing for Impact: The 2011 Tax Uncuts, Wealth Strategies Journal 2.0 (Beta), Sept. 9, 2010.
Bold Prediction: The estate tax returns with a top rate keyed to the income tax rates, which will be 38% and an exemption level of $3.5 million tied to inflation. Stepped-up basis returns but not for the estates that avoided estate taxes during 2010. Bush tax cuts expire for the higher levels of earners, but capital gains taxes remain at lower levels. The estate and gift tax systems then get reunited. This is just one hypothesis that is as good as any. Unfortunately, uncertainty is going to continue until Congress takes action.
Deborah L. Jacobs, quoted in Marshall Loeb, Estate-tax uncertainty will drag for a while, MarketWatch, Sept. 13, 2010.
The chaos in Washington is like "a family get-together where everyone is talking at once and no one is listening," said Deborah L. Jacobs, author of "Estate Planning Smarts."
She doesn't expect any resolution to the estate-tax mess this year and predicts that the uncertainty will extend to 2011.
Estate Tax Update, RotorNews, Sept. 13, 2010: “with the short legislative calendar and each day that passes, it is more and more likely that it will revert to the old law in 2011.”
Hani Sarji, What are you going to do on January 2, 2011?, Future of the Federal Estate Tax, Sept. 15, 2010:
Here are recent tweets between David Shulman (http://twitter.com/SoFlaEstatePlan) and me (http://twitter.com/HaniSarji):
Senate Passes Small Business Tax Bill, Stine Heiser Buss & Associates PC, Sept. 17, 2010:
The Senate passed a small business tax bill September 16, 2010 which includes several small business tax incentives. . . .
Don't expect passage of other tax items, such as fixing the federal estate tax, extension of the Bush cuts, and the AMT patch, before the November elections.
After reading these predictions, it becomes clear that if the estate tax returns in 2011 with an exemption of a mere $1 million and a tax rate of 55%, books like Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide (DJWorking Unlimited, 2009) will be required reading for even more people. This already popular book goes far beyond taxes, but starting in 2011 could gain a broader readership among individuals who did not previously need to worry about estate taxes.
Please e-mail me if you would like to add your own (or someone else's) prediction. Also, consider (1) joining Carter Ruml’s KYEstates 2010 Estate Tax Forecasting Contest, and (2) casting your vote in Julie Garber’s straw poll, which now open to everyone – Estate Tax Straw Poll - Cast Your Vote! - What Do You Think Congress Will Do With Estate Taxes in 2010?.
[Last updated 9/18/10.]
