Will Congress Change Estate Taxes?

Brittany Oates, Estate Planning Attorney

One question facing the new Congress is whether to change the current estate tax schedule.  The existing schedule is rather bizarre and can yield wildly different results depending on the year in which a person dies.  Generally, a person who dies in 2007 or 2008 can transfer $2 million to heirs estate tax free.  In 2009, this amount increases to $3.5 million. In 2010, the estate tax is repealed, but as of January 1, 2011 not only does it come back, it does so with only a $1 million exemption and a much higher tax rate.  That means a fortune could literally ride on whether someone dies in the final days of 2010 or in the first few days of 2011.

The tax “basis” rules also change dramatically. Currently, when you inherit property, the “basis” for calculating the capital gains tax when the property is sold, is the property’s value as of the date of the first owner’s death. Your basis gets “stepped up” from the pervious owner’s original basis, which is the value of the property on the date they purchased the property.  In 2010, you have to keep the first owner’s original basis and you no longer get the “stepped up” value.  Then in 2011, everything reverts to the current step-up rules. 

It will be interesting to see if the new Congress decides it’s not appropriate for such dramatically different results to occur for people who happen to die in one year rather than the next.  These erratic shifts in the tax laws mean it’s more important than ever to have a solid estate plan in place; a plan that will maximize your ability to care for your loved ones regardless of the ever changing legal landscape. We can help you put together a plan to take these issues into account and set your mind at ease.

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