Estate Tax Repeal Not Tax Appealing
June 14, 2006
Last week, after much speculation, the Senate rejected consideration of legislation which would have permanently repealed the federal estate tax. The House had already voted to repeal this tax. Most estate plans are tax-oriented, and the prospect of permanent repeal during the past two years has caused a number of people to defer necessary updates and revisions of their estate plans because of not wanting to have to redo them if the estate tax went away. It is now highly unlikely that the estate tax will be eliminated.
The estate tax applicable exclusion (exemption) and the generation skipping transfer tax exemption amounts have increased from $600,000 in 1987 to $2,000,000 today. Also, there have been significant changes made relative to the manner in which Illinois and other state estate taxes are determined. As a result, estate plans which were implemented or last reviewed before 2002 (or 2004 in some instances) should be reconsidered to see if family objectives are still being met and whether a modification is required. Other estate tax savings techniques may also be considered.
With permanent repeal of estate tax out of the way, what is next? The current law is clearly broken. The estate tax exemption is scheduled to increase to $3,500,000 in 2009. Then, for the year 2010, the estate tax would be repealed (and the step up in income tax basis at death would be eliminated). In 2011, the estate tax (and step up in basis) would come back again, but with only a $1,000,000 exemption. This has to be fixed, so some form of permanent reform is necessary. Whether this will occur yet this year, or next year or after the 2008 election year is not known. It is anticipated that reform will produce a higher estate tax exemption ($3,500,000 or $5,000,000 per person or even higher has been suggested) and a lower tax rate than the current 46% (up to 54% for larger estate when state estate taxes are added).
Because your estate plan is such a vital part of you life plan, we suggest that now may be the appropriate time for a review.