STEP

Title Research

Congress on brink of reinstating estate tax

16 December 2010

 

President Obama's 2011 federal tax package may finally be passed by Congress today. Unexpectedly, the final hurdle facing it is a disagreement over reintroduction of the estate tax.

The bill passed the Senate yesterday (Wednesday 15 December) by a large bipartisan majority. It includes a provision for reinstatement of the estate tax starting on 1 January 2011; there was, of course, no estate tax in 2010.

Democrats wanted to restore the tax at its 2009 level (a top rate of 45 per cent on a couple's combined estate above a $7 million  threshold) but Republican senators managed to carry an amendment limiting the tax to 35 per cent of a couple's estate above $10 million. Gift tax will also stay at 35 per cent.

Now the bill is moving to the House of Representatives for its final vote, some Democrat Representatives are planning to amend the bill again and restore the higher level of estate tax. If that happens, the whole bill will have to go back to the Senate.

But if the House Democrats' amendment is withdrawn or fails, the bill will go on to Obama for enactment. It will extend for another two years some existing income tax cuts introduced by the first Bush administration.

The new bill contains a provision under which people who inherited during 2010 can choose to pay estate tax at 35 per cent on joint assets above $5 million - and by doing so avoid a large chunk of capital gains tax. Some will find this attractive, some not. Whatever happens, US estate planning advisers are expecting the next two weeks to be very busy ones.

 

Sources

 

AP (via Google)

Reuters

Reuters (analysis)

Wall Street Journal

 

 


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