It’s an Outrage

The Economic Growth and Tax Relief Reconciliation Act of 2001, passed in the first year of the Bush 43 presidential term, was intended to respond to the cry for estate-tax repeal from numerous Republican lobbies.  The Act set in motion the gradual relaxation of the tax by going through a series of every-other-year increases in the amount of the exemption available to taxpayers, which was initially $1 million and reached $3.5 million in 2009. The Act also lowered the top tax rate starting in the first year from 55 percent to 45 percent. But then the Act provided for the elimination of the estate tax in 2010. Yes, the federal estate tax completely disappeared on January 1, 2010.

But that’s not the end of the story.

On January 1, 2011, the Estate Tax reappears.  The exemption level goes back to $1 million, as it was in 2001, and the rate goes back up to 55 percent.

The thought, of course, was that Congress would act.

The thought was that Congress would not want to go through a year when there was no estate tax.  According to the Urban-Brookings Tax Policy Center Microsimulation Model, it was estimated that in 2007 the estate tax would produce revenue for the federal government in the amount of $21.2 billion; $23.0 billion in 2008; and $17.9 billion in 2009.

Well, the expected congressional action did not occur.

Now you can imagine what estate planners are doing these days. On the one hand, clients are loath to do anything. Why should they pay an attorney to draft a fancy estate plan when it is almost sure Congress will act soon and rectify this imbalance? On the other hand if they don’t act, and they die in 2011, or perhaps 2010, they might be missing some big planning opportunities, especially if Congress does not act. And remember in 2011, when the exemption is at the $1 million level, there are many more families that will be subject to the tax and it is much more onerous at 55 percent.

From an estate planner’s standpoint, this is an outrage!  Congress — all of them, Republicans and Democrats — have a job to do. They need to make the needed changes to the estate tax, whatever they are. Taxpayers have the right to know what the details of the tax law are so they can plan their estates. The Tax Policy Blog a few years ago reported that the compliance costs associated with the estate tax are $1 for every $1 of tax collected. No doubt, this year compliance cost are higher.

This Post Has 2 Comments

  1. Gordon Hylton

    This nicely illustrates the danger of placing exploding provisions in legal documents to force one’s hand at some future date. Sometimes, the documents explode. The NFL and the NFLPA are experiencing something similiar with the salary cap expiration provisions in their collective bargaining agreement.

  2. Lee S. McCullough III

    I am a Utah attorney practicing in estate planning and asset protection (see and I have experienced alot of frustrated clients who don’t understand why congress can’t use common sense & give us a stable & predictable set of laws in regards to the estate tax. My approach is to plan for the worst & then create enough flexibility to make changes as the laws change.

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