Estate Planning News

House Votes To Reform Estate Tax

The U.S. House of Representatives voted today to reform estate taxes by passing the Permanent Estate Tax Relief Act (H.R. 5638).

Also known as the “death tax,” the estate tax is a tax on the value of a deceased individual’s assets before they are passed to their heirs.

The bill reunifies the estate, gift, and generation-skipping transfer taxes and increases the estate and death tax exemption to $5 million per person. In addition, married couples can carry over any unused part of their spouse’s $5 million exemption. For estates between $5 million and $25 million, the rate of tax will be the same as the capital gains tax rate. On estates valued at more than $25 million, the top marginal rate of tax will be double the capital gains tax rate.

Estates valued at $5 million or less would be subject to no estate tax beginning in 2010. Between $5 million and $25 million would be subject to a 15% tax in 2010 and a 20% tax in 2011 and thereafter, unless the lower rates are extended by a separate law. Estates at or exceeding $25 million would be subject to a 30% tax in 2010 and a 40% tax in 2011 and thereafter, unless the lower rates are extended by a separate law.

The death tax relief provided in the first Bush tax cut (Public Law 107-16, the Economic Growth and Tax Relief Reconciliation Act of 2001) will end at the start of 2011. Without further legislative action, the estate tax exemption will drop to $1 million per person and the maximum estate tax rate will increase to 55% (with a possible 5% surtax) in 2011, after years of decreasing estate tax rates and increasing exemptions.

“The current law has created huge uncertainty by calling for an unlimited exemption in 2010 and then dropping to an exemption in 2011,” said U.S. Rep. Bob Inglis (R-SC). “That’s not workable. This reform will give some certainty of tax treatment and a fairer tax treatment. Individuals with substantial farms, businesses and other appreciated assets of up to $5 million will be able to pass those assets to their heirs estate-tax-free. Individuals with estates of over $5 million will pay estate taxes."

Contact our Plano estate planning attorney now.

	Did You Know?
	A "Family Limited Partnership" can be used to own and manage your property In a similar manner to a Trust, but allowing additional tax planning techniques to be employed. Family Limited Partnerships are typically used for those who have large estates and thus have a need for specialized estate planning in order to minimize federal and state estate/death/inheritance taxes as well as provide elements of asset protection.