The estate tax was repealed for 2010, but it was set to return in 2011 with a top rate of 55% and an exclusion of just $1 million. We say “just” a million because during 2009, the last year that the tax was in effect, the exclusion was $3.5 million. Clearly a lot of people were concerned because estates that were valued between $1 million and $3.5 million were going to be exposed to the tax in 2011 when they were exempt in 2009 and 2010.
To make matters more difficult there had been talk throughout 2010 that Congress might take action before the new year to make changes to the estate tax parameters. On the one hand it was prudent to adjust your estate plan in anticipation of the $1 million exclusion; on the other hand you knew it was possible that legislation could be enacted to increase that amount at the last minute.
All of that speculation is now behind us as President Obama has signed a new tax relief bill into law, and it does provide positive changes on the estate tax front. This law is going to extend the Bush era tax cuts and provide some additional payroll tax savings in the form of a reduction in the Social Security tax.
When it comes to the estate tax the news is about as good as it could possibly be short of a complete repeal. There was a lot of resistance to the lessening of the estate tax burden from certain quarters, and strangely enough it was a point of fixation for federal tax advocates in Congress.
But in the end common sense won out and the exclusion will be $5 million for individuals and $10 million for couples. As mentioned in the opening, the rate of the estate tax was scheduled to come in at a rather hard to fathom 55% before this legislation was passed. Now it is down to 35%, which is a hefty rate but certainly a huge improvement.
- CRT: Best Tool for Proposed Tax Changes? - June 9, 2021
- Tax Proposals Could Alter Estate Planning Landscape - June 2, 2021
- Beneficiary Designations - May 13, 2021
