Finance & Enjoyment Blog

Estate tax is defined by the Internal Revenue service as "A tax on your right to transfer property at your death.  It consists of an accounting of everything you own or have certain interests in at the date of death."

In 2001, Congress enacted sweeping changes to the estate tax, gradually increasing the exemption amount from $675,000 to $3,500,000 today in 2009.  Because this legislation passed in the Senate with fewer than 60 votes, the changes could not be made permanent.  If Congress does not address estate tax in 2009, the tax will disappear as of January 1, 2010, and then reappear January 1, 2011 but with an exemption amount of only $1,000,000.

Earlier this year President Obama said he would favor extending the current $3.5 million exemption through 2010.  There is currently considerable bipartisan support in Washington, DC to pass legislation which would make the exemption permanent at $3.5 million, index it for inflation and introduce 'portability'.  Portability means that the portion of the $3.5 million exemption amount not used by the first spouse to die would attach to the surviving spouse's $3.5 million exemption, thus giving a couple a combined $7,000,000 exemption.

If Obama's preference becomes reality, it seems to be an equitable way to resolve the estate tax issue.  Married coupled could title their property in joint tenancy without any adverse estate tax problems, which is frequently the choice of married couples.  Joint tenancy also allows married couples to leave all joint assets to the surviving spouse, and then pass those assets to the children upon the death of the surviving spouse.

Furthermore, in situations where spouses do not wish to leave everything to the surviving spouse, perhaps as with second marriages, they have an option of leaving assets directly to children.  These and other tax planning techniques currently available will remain available.

On a related matter, the Federal Treasury issued the Green Book in May 2009.  The Green Book contained language that restricts discounts placed on minority interests, or lack of marketability in gift and estate tax planning in the future.  Assuming Congress passes estate tax legislation later this year, it may include these restrictions.  Thus, any gifts which may presently qualify for these types of discounts should be finalized as soon as possible.  November 1, 2009 is a likely timeframe estimate of when these estate tax changes may be realized.


Posted in Rules and Regulations »



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