Estate Tax Repeal Update - Predictions About the New Federal Estate Tax Law

A recent seminar I attended titled "Federal Legislative Expectations in 2009-10" given by Emory law school professor Jeffrey N. Pennell was certainly eye opening for me. While no one really knows what will happen with Congress and the federal estate tax until it actually happens, Professor Pennell predicts the following:

1. Congress will do the easiest thing possible and buy a couple of years by simply extending the 2009 estate tax exemption ($3.5 million) and tax rate (45%) through 2010 and 2011.
2. Don't be surprised if January 1, 2010 rolls around and Congress has done nothing about the estate tax. Instead, they'll act right before the first federal estate tax return for 2010 is due (which is on or before October 1, 2010) and make the new law retroactive back to January 1, 2010.
3. H.R. 436 is "garbage." It has been introduced in the last two Congressional sessions, has no other sponsors, and has gone absolutely nowhere. Thus, the bill has little if any chance of becoming law.
4. The new law beyond the two year "patch" will be a combination of S. 722, introduced by Sen. Max Baucus (D-MT) on March 26, 2009, and H.R. 2023, introduced by Rep. Jim McDermott (D-WA) on April 22, 2009. These bills both call for the following:
• Unity of the generation-skipping transfer tax exemption and gift tax exemption with the estate tax exemption.
• Adoption of portability of the estate tax exemption between spouses.

And these bills differ as follows:


• S. 722 calls for a $3.5 million exemption and H.R. 2023 calls for a $2 million exemption, but both would have the exemption indexed for inflation.
• S. 722 calls for a flat 45% tax rate, while H.R. 2023 calls for a progressive rate = 45% for estates valued up to $5 million, 50% for estates valued between $5 million and $10 million, and 55% for estates valued over $10 million.
• S. 722 sets the section 2032A cap on the reduction of value under the special use valuation provisions at $3.5 million.
• H.R. 2023 restores the section 2011 credit for the state death tax.

If Professor Pennell is correct, then we'll be waiting for a resolution on the status of the federal estate tax well after we've made our New Year's resolutions for 2010. So stay tuned for updates on his predictions.

• Overview of Current Federal Estate Tax Laws
• Exemption from Federal Estate Taxes: 1997 - 2011
• What is the Future of the Federal Estate Tax?
• Sept. 17, 2009 - One Year Patch Likely to End Estate Tax Repeal in 2010
• Oct. 22, 2009 - Update on Predictions About the New Federal Estate Tax Law
• Dec. 18, 2009 - Federal Estate Taxes Will Die on January 1!
• Dec. 21, 2009 - Yes, You Will Still Need an Estate Plan in 2010
• March 20, 2010 - Estate Tax Repeal Update - Finally Something New and Different to Report
• April 19, 2010 - Kissing a Retroactive Estate Tax Goodbye