2009 Estate Tax Changes Brewing

2009 Estate Tax Changes Brewing

By: Martin M. Shenkman, CPA, MBA, JD

A bill was introduced into the house, Bill No. 436 which could have substantial impact on the estate tax. Here are some of the key changes proposed:

  • No estate tax repeal. Estate tax is here to stay!
  • The exclusion (amount you can give away without any tax) is going to stay at this year's amount of $3.5 million. The good news is 98%+ of Americans will never pay a tax. For the very wealthy, the tax will remain significant. That being said, most people will actually suffer from this large exclusion. Taxpayers will become complacent about planning without the hammer of the federal estate tax. You still need planning, you still need trusts to protect your heirs against divorce, lawsuits and fiscal mismanagement. Watch state estate taxes. 22 states have different systems and you might still face a hefty state estate tax.
  • The maximum estate tax rate will be frozen at the current 45%. Less than it had been years ago, but for those subject to the tax, a force to reckon with.
  • For estates over $10 million the exclusion will be phased out.
  • No discounts on non-business and passive assets. This will eliminate a lot of the great planning many had used to minimize the estate tax. This will also make asset protection much tougher to do (no discounts means doctors can hide away less assets in a trust before having to pay a gift tax for the privilege).

There is more. This is not the only bill Congress is or will consider. Here's some other tough tax rules on the table for consideration:

  • Curtail or eliminate QPRTs - qualified personal residence trusts. This has been a great tool for elderly looking to minimize estate taxes while keeping the investment assets they are living on.
  • GRATs - Grantor Retained Annuity Trusts could be curtailed or eliminated. A much talked about change is mandating a minimum 10% gift on setting up such a tax oriented trust. That would make this technique nearly useless for the super wealthy, and make it costly for others subject to tax.
  • Retroactivity. Yep, there is a lot of chatter about making changes retroactive. Usually tax changes are prospective, only apply after the rules become law. But it seems in this economic environment anything might be fair play.

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