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By Editor, August 3, 2010

As we all face five more months of 2010 with our hands still in the air on the issue of estate tax repeal, you might be wondering, “What’s the deal?”

Though we don’t profess to have all the answers, we do have some insight on where things currently stand. 

Both the House and Senate will adjourn this Friday, August 6, for a five week recess, reconvening on September 13, 2010.  The first estate tax return (Form 706) for a 2010 decedent would potentially be due October 1, 2010 if retroactive legislation were to reinstate the estate tax this year. However, “there is no agreement on the estate tax either in substance or process. None whatsoever,” said Max Baucus (D-MT), Senate Finance Committee Chairman, in May 2010. 

Baucus abandoned efforts to temporarily extend the estate tax in December 2009 due to republican opposition despite the successful passing of H.R. 4154 in the House a week earlier, permanently extending 2009 estate tax levels.  The House bill was read for a second time on January 20, 2010, making it available for consideration by the Senate at any time.

A few new bills have been introduced this year addressing the repeal. Most notably, S. 3533, introduced on June 24, 2010, a bill sponsored by Vermont Independent, Bernard Sanders, retroactively reinstating the estate and GST taxes for 2010 with exemptions starting at $750,000 to $3.5 million and ranging rates from 39% to 45%.  The bill also introduces additional bracket levels of $10 million, $50 million and $500 million taxed at 50%, 55% and 65%, respectively.  California Representative, Linda Sanchez (D-CA) introduced an identical bill in the House on July 15, 2010, H.R. 5764: The Responsible Estate Tax Act.

Republicans, however, have taken a different approach and attempted to attach an amendment to the Small business lending bill or Jobs bill, setting the exemption at $5 million and 35%. There would be an option for each estate to choose whether to apply retroactively or not.  The bill passed the House in June 2010, but without the amendment so far. The Senate has their own version of this bill and there has been some commentary that the issue of the estate tax could be used to gain republican support of the bill.  Yet, on July 29, 2010, all 41 Senate Republicans filibustered the bill, wanting the opportunity to add a few amendments (the estate tax being one of them). 

Though permanent repeal of the estate tax is an unlikely option, Senator DeMint (R-SC) made such a motion on July 22, 2010, but was defeated by a 39-59 roll call vote. 

As we approach a mid-term election in November, it seems politically impractical to grant the wealthy an estate tax break by increasing the exemption to $5 million or higher with a lower rate of 35%.  However, if Congress doesn’t take action, the exemption will fall to $1 million with a top rate of 55% come January 1, 2011.  Perhaps this is Congress’ desire, as these levels could generate revenue of over $400 billion over the next 10 years. Additionally, revenue will be seen from the sale of assets inherited this year, potentially more revenue than would have been collected if we were at $3.5 million this year instead of repeal. The new surge of gift tax revenue this year (because of the lower 35% gift tax rate) is estimated to generate more than $14 billion.

Lack of consensus on reform in 2010 has left estate planning analogous to strategies in a chess game – only everyone is keeping their hands on the pieces.