The federal estate tax exemption or the amount that is not subject to tax is $3,500,000 for an individual dying in 2009. The gift tax exemption is $1,000,000. The maximum federal estate and gift tax rate is 45%. Under current law there is no estate tax for individuals dying in 2010, but for 2011 and beyond the estate tax exemption will return to the pre 2000 amount of $1,000,000 per person. The gift tax exemption remains at $1,000,000 per person for 2010 and beyond. Beginning in 2011, the maximum federal estate and gift tax rate is 55%.
Most everyone believes that the current law will be changed before the year 2010 comes and there is no estate tax. The question is how the law will be changed and is there anything that can be done in 2009 to take advantage of certain provisions of the current law.
The “Certain Estate Tax Relief Act of 2009” (H.R.436) has already been introduced in the House. This bill would retain the current exemption of $3,500,000 indefinitely beginning in 2010. The rate of tax would remain at 45% (50% for large estates). This bill also contains other important provisions. On the positive side, the bill would repeal the carryover basis rules scheduled to become effective in 2010. One negative aspect of this legislation is the removal of the valuation discounts for transfers of non business assets to closely held entities such as Family Limited Partnerships.
Senate Democrats have recently offered their proposal which would set the exemption for both estate and gift tax purposes at $5,000,000 per person ($10,000,000 per couple) indexed for inflation. The estate and gift tax rate would be 35%. There are other proposed bills in Congress dealing with the estate tax. While the post 2009 estate tax law must be determined by our legislators, this may not happen this fall. It has been suggested that Congress may simply extend the law effective for 2009 to 2010 and deal with the broader issues later.
In the meantime, it may be wise to consider transferring non business assets to a Family Limited Partnership now. The discounts for lack of marketability and control are currently available, thus allowing a transferor to either pay less gift tax or transfer more property. While the final version of H.R. 436 could make the effective date retroactive, this seems unlikely since the current version has a prospective effective date.
Most everyone believes that the current law will be changed before the year 2010 comes and there is no estate tax. The question is how the law will be changed and is there anything that can be done in 2009 to take advantage of certain provisions of the current law.
The “Certain Estate Tax Relief Act of 2009” (H.R.436) has already been introduced in the House. This bill would retain the current exemption of $3,500,000 indefinitely beginning in 2010. The rate of tax would remain at 45% (50% for large estates). This bill also contains other important provisions. On the positive side, the bill would repeal the carryover basis rules scheduled to become effective in 2010. One negative aspect of this legislation is the removal of the valuation discounts for transfers of non business assets to closely held entities such as Family Limited Partnerships.
Senate Democrats have recently offered their proposal which would set the exemption for both estate and gift tax purposes at $5,000,000 per person ($10,000,000 per couple) indexed for inflation. The estate and gift tax rate would be 35%. There are other proposed bills in Congress dealing with the estate tax. While the post 2009 estate tax law must be determined by our legislators, this may not happen this fall. It has been suggested that Congress may simply extend the law effective for 2009 to 2010 and deal with the broader issues later.
In the meantime, it may be wise to consider transferring non business assets to a Family Limited Partnership now. The discounts for lack of marketability and control are currently available, thus allowing a transferor to either pay less gift tax or transfer more property. While the final version of H.R. 436 could make the effective date retroactive, this seems unlikely since the current version has a prospective effective date.
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