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Here's some food for thought: A multi-millionaire who dies today in the US might not have to pay any estate tax. There may have been a silent and temporary estate tax repeal this year.
Now, if you're thinking about drafting some estate planning documents, you might be left scratching your head. Don't worry. Your estate planning attorney is also probably scratching their head, too.
Up until last year, anything over the $3.5 million exemption amount was subject to estate tax. The estate tax rules relating to estate tax rates and personal exemptions were set to sunset in 2009. And expire they did, leaving behind a confusing mess for Congress to sort through.
You see, with the current state of affairs involving job creation and health care, lawmakers let this little expiration date slide by.
So what does this mean for those who have a high net worth and want to plan their estates?
A 2009 House bill was introduced but was dissected on the operating table.
Opponents of he bill wanted to see the personal exemption raised to $5 million, or to see the estate tax repealed altogether. But that wasn't the only issue with the bill, cried the opponents. It was also not the most revenue-efficient bill and would decrease revenues over a ten year period.
As it stands today, lawmakers are looking at extending the 2009 estate, gift and tax law for 2010 on a retroactive basis. But retroactivity of a law has its own issues and constitutional lawyers will no doubt shout "foul!"
In 2009, the exemption amount was $3.5 million. Thus, any amount above the $3.5 million was subject to estate tax. There is currently no estate tax in 2010 and the exemption amount will go to $1 million in 2011, unless Congress acts.
Also affected by this repeal is the generation-skipping tax, which essentially imposes a tax on transfers that "skip" a generation and evade estate or gift tax.
The "step-up in basis" of property transferred by inheritance also stands to be affected by the lapse of the law. Under the prior law, property transferred by inheritance takes the current market value at death, as opposed to what's called a "carryover basis", which is the value that the property had, for tax purposes, when it was in the grantor's hand.
And so we wait to see how the legislators will handle this issue. In light of the other issues they are currently tackling, along with the inability for much consensus in the Houses, we may have to wait a while to hear the conclusion of this legislative tale.
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.