What’s Happening with the Estate Tax?

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One of the hottest legislative issues in 2010 has been the estate tax, a tax imposed by the federal government on the transfer of property from one person to another upon death. But where does it stand now?

The Estate Tax in 2010

There is currently no federal estate tax on the estates of people who have died or will die in 2010. President Bush’s 2001 tax plan gradually decreased estate tax rates over the course of a decade, putting the 2010 estate tax rate at 0%.

As there has been no action to retroactively apply estate tax in 2010, it looks unlikely that the estates of those who have died or will die in 2010 will be subject to federal estate tax.

The Estate Tax in 2011

The estate tax is scheduled to return for 2011, with the rates and threshold that was in place in 2001; that is, without further action from Congress, federal law would require that an estate tax return be filed for anyone who dies in 2011 and whose estate is worth $1 million or more. The estate tax rate on those estates would be 55%.

Congress is still debating the threshold value of estates before the estate tax would kick in as well as the tax rate itself, so neither of these provisions are set in stone.

For example, President Obama has proposed exempting estates worth $3.5 million or less ($7 million for married couples) and taxing estates worth more than that at 45%; some senators would agree to that, but then would like to gradually raise the exemption to $5 million and lower the tax rate to 35%.

Unfortunately, there hasn’t been much public talk about the estate tax since May, when Senate Finance Committee Chairman Max Baucus (D-Mont.) said, “There’s no agreement on estate tax, neither on substance nor on process. None whatsoever.”

Baucus himself doesn’t anticipate Congress accomplishing much after the elections in November, so it seems Congress won't be addressing the estate tax until 2011.

State Estate Tax

Remember that the discussion above concerns only the federal estate tax; some states have an estate tax as well, so you may have to consider that in your estate planning, too.