House Passes Permanent Estate Tax Bill; We Await Senate Action
Congress in 2001 decided to repeal the estate tax in 2010 before reinstating it in 2011 at the previous higher top rate of 55 percent for estates valued at more than $1 million.
On December 3, the House by a vote of 225 to 200 approved H.R. 4154, the "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009." The bill would make permanent the present-law estate, gift, and generation skipping transfer (GST) tax laws in effect for 2009.
Specifically, under the House-passed bill:
- The federal estate tax exemption amount and the GST tax exemption would both be $3.5 million for decedents dying during 2010 and later years.
- The lifetime gift tax exclusion amount would be $1 million for 2010 and later years.
- The highest estate and gift tax rate would be 45%.
- The GST tax rate would be determined using the highest estate and gift tax rate.
- The modified carryover basis rules that were to apply for purposes of determining basis in property acquired from a decedent who dies in 2010 would be repealed. The 'stepped up' basis rules will continue to apply.
- The repeal of the State death tax credit under current law would be permanent and a deduction for death taxes paid to any State or the District of Columbia would be allowed.
- The 2001 Act's repeal of the qualified family-owned business deduction would be permanent.
- The sunset of the estate, gift, and generation skipping transfer tax provisions under current law scheduled to occur for decedents dying, gifts made, and generation skipping transfers made after Dec. 31, 2010 would be repealed. As a result, the bill would make permanent the modifications to the rules regarding (1) qualified conservation easements, (2) installment payment of estate taxes, and (3) various technical aspects of the GST tax under current law.
The measure now goes to the Senate, which will likely consider its own version, which will have to be reconciled with the House-passed bill, passed again by both chambers, and signed by President Barack Obama by Dec. 31 to avoid the levy expiring. As of the date of this memorandum, there is no currently active estate tax bill in the Senate. However, the most recently introduced estate tax Senate bill, S. 2784 which was introduced on November 17, 2009, includes provisions to permanently extend the estate tax as in effect in 2009 and to increase the unified credit of a surviving spouse by the unused unified credit of his or her deceased spouse. Republicans and some Democrats in the Senate prefer an estate tax rate of 35% and an estate tax exemption equal to $5,000,000, and they could oppose the extension of the estate tax as in effect in 2009 and potentially stop the House-passed bill in the Senate. If the legislation is not completed before the end of the year, under current law, there would be no estate tax in the year 2010 and in 2011, the tax would return with an exemption of $1,000,000 and a 55% rate.
Maryland estate tax law is unaffected by these developments. Under current Maryland law, a tax is assessed on decedents' estate in excess of $1,000,000.00 and the maximum estate tax rate is 16%.
Feel free to contact Esther Streete regarding the status of the estate tax laws and you estate planning needs. She can be reached at 301-441-2420 ext. 209.