Whither Goeth The Estate Tax?

Estate Tax -Yes or No?. One of the biggest frustrations of estate planners the past few years has been planning for potential estate taxes. The exemption, of course, has been rising, now $2 million and increasing to $3.5 million in 2009. However, the sunset provisions of the large exemptions and the regression to $1 million in 2011 have been a cause of concern.

We advised clients that despite the impasse in Congress, there was movement to increase the exemption and establish a permanent rate in the August 2006 legislation. This was dropped at the last minute because of lack of agreement on the tax rate.

Now we have an election year, a recession, rising deficits, and a costly war. We have been advising clients that the likely compromise will be a personal exemption $3.5 to $5 million per person with some compromise rate of 35 percent (45 percent is the current rate).

Latest Senate Budget Resolution. Conrad Teitell, a leading tax authority on philanthropy and charitable planning, has just released his summary of the latest Senate Budget Resolution. Amendment 4160 was the only estate tax amendment to pass. It would make the 2009 law permanent - a $3.5 million exemption ($7 million per couple) with a 45 percent flat rate. This amendment passed 99 to 1!

Amendment 4160 and the Budget Resolution do not constitute law, but are only the Senate’s intentions regarding the budget.

Mr. Teitell points out that five other amendments were offered but not passed:

Amendment 4170 (exemption per couple $15 million, 35 percent rate) rejected 47 to 52.

Amendment 4191 (exemption $10 million per couple, rate starts at 15 percent, top rate 35 percent) rejected 50 to 50.

Amendment 4372 (special protection for small businesses, ranches, and farms with a $5 million exemption, a lower rate for smaller estates, and a maximum rate of 35 percent) rejected 48 to 50.

Amendment 4196 (exemption $10 million per couple, $5 million per person, rate 35 percent) rejected 38 to 72.

Amendment 4378 (exemption $10 million per couple, $5 million per person, 35 percent flat rate with a small surcharge for large estates, special breaks for small businesses, farms, and ranches) rejected 23 to 77.

Senate Finance Committee. We understand that a third hearing on estate tax revision is scheduled by the Senate Finance Committee in April. At its March 12, 2008 hearing the Committee heard testimony about possible substitutes for the current estate tax system. We have no advance indication of the agenda of an April meeting. However, considering the current gridlock in Congress and the election controversies, it seems to this writer that a compromise on the estate tax is the easy way out, if Congress is going to resolve the mess at all before the election.

Stay Tuned. The winds of Washington blow in strange directions. It is hazardous to predict an outcome in our current environment. However, it is somewhat comforting from a planner’s perspective to have near unanimous Senate approval of an amendment which would basically freeze the 2009 tax provisions.

My guess is that wholesale estate tax reform will probably go the way of wholesale reform of the income tax (a lot of talk and no action). However, who’s to tell. Political prognostication is not my forte. Let’s just hope we get some Congressional action before November.

If you wish to consider estate tax planning or any other matters concerning wills, trusts, or probate, please call Jim Modrall or any of the attorneys listed below.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Edgar Roy, III, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., John M. Grogan, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660

©BRANDT, FISHER, ALWARD & ROY, P.C.

This newsletter is provided for informational purposes and should not be acted upon without professional
advice.