The U.S. Senate finished its work for the year without acting on the Bill the House passed that would have extended the 2009 federal estate tax — any estate over $3.5 million is taxed at 45%.
However, with the Senate’s inaction, the Estate tax in 2010 will be zero. Yet, as I have discussed previously, the Estate Tax disappearance is combined with a potential increase in Capital Gains taxes for inherited assets.
The disappearing Estate Tax is likely to be short lived, however, as Democrats are promising to reinstate the Estate Tax in 2010 and make it retroactive to January 1, 2010. So before you encourage any of your wealthy relatives to wait until 2010 to die, see what happens in the Senate.
Republicans are working to keep the exemption amount high – $3.5 million or higher and the tax rate at 35%. Democrats want the exemption level lowered and a higher tax rate, e.g. 55%.
If Congress does not enact a new law, the Estate Tax will return on January 1, 2011 to its 2000 level taxing an estate valued at over $1 million at a tax rate of 55%.
Chances are that a compromise is going to be reached and we will continue to have an Estate Tax in 2010. So, stay tuned!
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