What is Going on with the Estate Tax?

Is the Federal Estate tax going away in 2010, being extended for 2010, or will there be total repeal?  Will Congress get around to addressing it this year (only 30 days left guys)?  Or will we be in total limbo?

I chuckled last week when fellow blogger David Schulman of South Florida Estate Planning Law quipped that "I'm Not Writing About Pending Estate Tax Legislation".  David rightly points out that until something concrete comes to pass, we estate attorneys might as well be reading tea leaves.

Not all bloggers feel that way it seems as this week I came across a blog specifically dedicated to federal estate tax legislation changes, aptly named "Future of the Federal Estate Tax".  Here you will get a summary of every piece of legislation being offered on the federal estate tax, with links to the bills themselves.  Blogger Hani Sarji also pulls together some of the latest commentary, included several op ed pieces that ran in the NY Times this weekend in response to last weekends opinion piece "Protect the Farm, Tax the Manor"

For me, I don't make law, I just try to make it work best for my clients.  I can only hope that Congress recognizes what a mess a one year repeal could be and takes responsible action before year end. (yes - I am aware that "Congress" and "responsible action" do not always go hand in hand).

Estate Tax Being Pushed Back

After a flurry of reports that Congress was going to address the estate tax this week, Derek Jenson posts this week that it is being postponed until at least after Thanksgiving.  Derek comments that this makes the one year extension of the current federal estate tax law (a $3.5 million exemption per person with a 45% rate) virtually a lock - because what else do they have time to do at this point?

Interestingly, Derek comments on how this "band aid" is only going to create more of an issue for congress.  

The 2010 extension is easy. It is a tax increase. What is difficult is raising the exemption and lower the rates for 2011. That will be a tax cut. [snip] It is not difficult to image that a year from now we will still not have a permanent estate tax bill and will be facing another one year extension or a return to the $1.0 million exemption."

Recall that under the current law, while there is no estate tax in 2010, the estate tax returns in 2011 with a $1 million exemption and 55% top rate - so the trade off for one year of no estate tax is potentially agreeing to keep the current level of $3.5 million exemption and 45% permanently (not that anything is ever truly permanent with tax and congress).  

According to the Congressional Quarterly, the cost of keeping the current rates over the next 10 years versus allow the estate tax to go away for 1 year and then come back in at lower levels (ie, if Congress does nothing) is a staggering $233.6 billion over 10 years.  We we are looking at extreme health care costs on top of an already bloated budget - perhaps a do nothing approach may net Congress more dollars in the end.