LEGISLATIVE ESTATE PLANNING UPDATE
On May 5, Peter Rowan, a lobbyist for UBS Financial Services Inc. reported during a conference call with the Family Estate Planning Law Group, colleagues and friends an update regarding present legislation related to estate planning proposed in Washington. As you are aware, the current federal estate tax law provides a $3.5 million exemption from estate taxes (called the Unified Credit or as our clients know it, the “Coupon”). Under current law, however, the estate tax is to be repealed in 2010 for one year but will return to pre-2001 tax rates and exemption. As the current law stands, in 2011 the Unified Credit or Coupon will be reduced to $1 million and the highest tax bracket will return to 55 percent. With the deadline of January 1, 2010 for the one-year repeal (suspension) and then the return in 2011, Peter indicated the urgency in Washington to “get something done.”
Peter outlined two potential actions that he would anticipate that Congress would do by December 31, 2009. First, he indicated that a permanent extension of the $3.5 million dollar exemption/Coupon is the most likely scenario. He indicated that Senator Max Baucus, a democrat from Montana who is the Chairman of the Senate Finance Committee, has proposed a permanent exclusion of $3.5 million along with a tax rate of 45 percent, along with the unification of the gift tax exemption and generation skipping tax exemptions all at $3.5 million. What this means is there will again be a unification of the estate, gift and generation skipping transfer tax exemptions as existed prior to EGTRRA which was enacted in 2001 and which is the current law.
The second scenario which Peter discussed is a one-year extension of the $3.5 million estate tax exemption/Coupon which will essentially delay the debate regarding what the permanent estate tax law would be until December 31, 2010. This approach is less likely to happen, however, its likelihood is increasing as the deadline approaches. In the event the one-year extension is enacted, Peter indicated that the leverage or the momentum for having a less than $3.5 million exemption or Coupon would increase towards those proponents who would like to see the exemption or Coupon go down to somewhere in the $2 million to $1 million range, which in effect would cause an increase in estate taxes.
As Peter indicated it is still unclear as to what the estate tax law will be in 2010. He also indicated that with the recession, increasing federal deficit, the two wars, proposed changes in health care and Medicaid/Medicare laws, and the myriad of issues facing Washington, the estate tax law is being given very little attention. However, it is unlikely that Congress will fail to act prior to December 31st.
What this all means is stay tuned as something should happen. Peter suggested that something should happen after the August legislative break. We will keep our ears close to the ground in Washington to provide you with the latest proposals and “momentum” regarding the estate tax laws.