Estate tax proposal looks to maintain current exemptions

Situation: What’s the future of the estate tax after 2009? This is a question that your clients have probably been asking lately because the estate tax is scheduled to sunset in 2010 and then rise again, like the phoenix, in 2011 at higher rates and with a substantially lower unified exemption credit equivalent, or estate tax exemption, of $1 million. Solution: Here are the facts. Senate Finance Committee Chairman Max Baucus, D-Mont., recently announced proposed legislation that covers changes to the estate tax, as well as income tax and alternative minimum tax. The estate tax changes are a significant part of the proposed Taxpayer Certainty and Relief Act of 2009. The bill would make permanent the 2009 estate-tax exemption of $3.5 million for an individual. The 2009 gift-tax exemption of $1 million, and the $3.5 million generation-skipping transfer-tax exemption, would also be made permanent. The exemptions for a couple would be double these amounts. For example, the estate- tax exemption for a married couple would be $7 million. The proposed legislation provides for inflation indexing of the exemptions for the estate tax, generation-skipping tax and gift-tax exemption in $10,000 increments. beginning in 2011. The top estate-tax rate would be fixed at 45%, as under current law. The proposal would make the unused portion of the estate-tax exemption of a deceased spouse portable for use by the surviving spouse. For example, if a husband and wife each have a $3.5 million estate tax exemption, then any unused portion of the $3.5 million estate tax exemption from the first to die would be portable by election and could be used by the surviving spouse in addition to his or her own $3.5 million exemption. The proposed legislation also provides for an increase in the special-use-valuation method for certain farms and small businesses to equal the estate-tax exemption of $3.5 million effective after Dec. 31, 2009.