The Evergreen Portfolio: Timeless Strategies to Survive and Prosper from Investing Pros

Chapter 15. The 2010 Estate Tax Law: Here to Stay or Going Away?

Gary Kashdan

When Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 (also known as EGTRRA), they had to use some legislative maneuvering to make the potential loss in tax revenue fit into the federal budget. While the act eliminated the federal estate tax entirely in 2010, it also contains a "sunset provision" that reinstates federal estate taxes in 2011. As of 2011, the lifetime estate tax exemption that had increased in steps to $3,500,000 per individual in 2009 is scheduled to permanently reset to $1 million, and the top tax rate, which was 45 percent in 2009, will increase to 55 percent with an additional 5 percent surtax for some larger estates. Although the estate tax is repealed as of January 1, 2010, the gift tax remains with the same lifetime exclusion of $1 million per person. However, the tax rate on cumulative lifetime taxable gifts over $1 million has decreased from 45 percent in 2009 to 35 percent in 2010. For 2010, the annual gift tax exclusion amount remains unchanged at $13,000 per donee.

Everyone expected Congress to enact a legislative "patch" during 2009 that would extend the $3.5 million estate tax exemption and 45 percent top tax rate until they decided what to do for the long term. Alas, Congress failed to act and so made it impossible for attorneys, accountants, and financial planning professionals to give their clients estate planning advice that could be relied upon ...