How Could They Do That?
It’s December 19, 2009, the House of Representatives is out of session and there has been no change to the estate tax.
January 1, 2010 there will be no estate tax. At all. And there will be carry-over basis.
Who would have thought our Congress would be so irresponsible?
As the Wall Street Journal points out:
“The possible expiration of the federal-estate tax has sent the normally staid world of estate planning into a frenzy of activity, as taxpayers try to cope with uncertainty.
Without the old estate tax in place, some new rules will come into play, potentially forcing families to dig up decades-old records or face big tax penalties. Some other onerous taxes will lapse, potentially cutting bills by two-thirds on transfers to grandchildren. And a debate is raging about whether Congress can pass a bill next year that would be retroactive to Jan. 1.
“These changes bring planning opportunities but also dilemmas, because we don’t know what will happen,” said Carol Harrington, head of estate planning at law firm McDermott, Will & Emery.
The problem dates back to 2001, when Congress passed an estate-tax law that cut rates and increased the size of estates that would be hit by the tax. Right now, there is a federal tax of up to 45% on estates valued at more than $3.5 million, which applies to only about 5,500 estates a year. The law mandates that the estate tax disappear entirely in 2010, but then reinstated in 2011 at a 55% rate, with an exemption of slightly more than $1 million.
Democrats said they will resurrect the law retroactively, in January. Some Republicans likely will oppose making any new law retroactive. But questions swirl around the constitutionality of making the tax retroactive.
The House of Representatives voted this month to make the current law permanent, but Senate Democratic leaders have failed to push through an extension. Some lawmakers are supporting a higher exclusion of $5 million and a lower tax rate, 35%.
Estate-tax lawyers and planners are shocked and livid. “We never dreamed Congress would be this irresponsible,” Ms. Harrington said. “It is the stupidest policy imaginable. People will die, and executors need to move quickly. But no one knows what the law will be.”
To get any agreement before Jan. 1, a “phoenix would have to rise from the ashes,” said Clint Stretch, a principal with Deloitte Tax LLP, a tax-consulting firm. The House has recessed for the year and would need to be called back. The Senate, still sitting, is enmeshed in the health-care debate.”