Estate Taxes in 2009 and Beyond
What will happen to the federal estate tax after the presidential election?
Best Guess: The current consensus of estate planning advisors is that the applicable exclusion will be frozen at $3.5 million, and we will never see the one-year repeal of the estate tax in 2010 followed by a reinstatement of pre-2001 tax law in 2011.
Status Quo: Unless Congress acts this year to change current law, on January 1, 2009 the “applicable exclusion amount” for the federal estate tax will be $3.5 million. Without further Congressional action, the estate tax will be repealed in 2010 for one year, and in 2011 the tax law reverts to pre-2001 law, which provides for a $1 million applicable exclusion.
Presidential Candidates: Barack Obama would leave the applicable exclusion at $3.5 million per person and the tax rate at 45%. John McCain proposes a $10 millionapplicable exclusion and an estate tax rate of 15%. For a summary of Barack Obama’s tax proposals, see http://www.barackobama.com/pdf/taxes/Factsheet_Tax_Plan_FINAL.pdf. For a summary of John McCain’s proposals (of which taxes are only a part), see http://www.johnmccain.com/Images/Issues/JobsforAmerica/briefing.pdf. For one point of view of both tax proposals,
Future Outlook: Will the status quo remain in effect? No one really knows exactly what Congress and the President will do next year. The makeup of Congress, the identity of the President, and the status of the economy will be major factors. For now, however, neither John McCain nor Barack Obama proposes a total elimination of the tax or a reversion to the 2001 tax exclusions and rates. For now, it seems safe to plan on the 2009 exclusion of $3.5 million as the permenant figure. Regardless of the increase of the estate tax exclusion, the lifetime gift tax exclusion will remain at $1 million, and any amount of the gift tax exclusion that is used will reduce the $3.5 million estate tax exclusion available at death.
Gift-Tax Exclusion: Other than a possible cost-of-living adjustment already provided for by law, there is no proposal to reduce or increase the $12,000 annual gift tax exclusion, which allows a donor to give up to $12,000 per recipient during each calendar year. (Gifts covered by the annual gift tax exclusion amount do not count against the $1 million exclusion for lifetime gifts or against the $3.5 million exclusion for transfers at death.)