Estate Tax Confusion May Help Billionaire Heirs

It is a disgrace the way Washington lawmakers have mishandled the estate tax law which has caused chaos for taxpayers and their estate planners. It is important that estate tax laws be relatively stable, and any changes should allow a reasonable phase-in period to allow taxpayers to conform their wills and trusts. But Congress allowed the previous law to expire in 2009 without any new estate tax legislation.

When the previous law expired, the estate tax exclusion amount was set at $3.5 million (effectively $7 million for married couples who use a bypass trust). On January 1, 2010, the estate tax was repealed, but almost everyone has assumed for planning purposes that something would be done promptly to institute a reasonable estate tax exclusion which would be retroactive to January 1, 2010. If nothing is done, the old exclusion of only $1 million will return in 2011, which will impact millions of Americans.

Year Exclusion
tax rate
2001 $675,000 55%
2002 $1 million 50%
2003 $1 million 49%
2004 $1.5 million 48%
2005 $1.5 million 47%
2006 $2 million 46%
2007 $2 million 45%
2008 $2 million 45%
2009 $3.5 million 45%
2010 * Repealed * 0% *
2011 $1 million 55%

Now the IRS may lose billions in lost tax collections because of the death of Texas billionaire Dan Duncan on March 28. Duncan was on the Forbes 400 list and his estate is worth about $9 billion. This could have generated as much as $4 billion for the IRS, but now they may get nothing!

Many in Congress will be tempted to collect this revenue by quickly reinstating the estate tax for 2010 and making it retroactive to the beginning of the year. But now the stakes have been raised. Big lawyers are prepared to fight to save billions for the heirs, and the estate tax litigation may be tied up in the courts for years before things are clarified. What a mess!


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