Beating the estate tax to death

By Eva Rosenberg, MarketWatch

LOS ANGELES (MarketWatch) -- It's OK to take good old gramps off life support now -- there will be an estate tax in 2010, even if current law has it expiring on Jan. 1.

Ever since the Economic Growth and Tax Relief Reconciliation Act of 2001 passed, there have been jokes flying around about killing off the wealthy in 2010 when, under that law, the estate tax is repealed for one year. But after nearly 10 years, the jokes are getting stale.

Opinion:Tax-increase caucus
Daniel Henninger discusses how Robert Rubin and Alan Greenspan agree that Americans should send more of their paychecks to Washington.

More tax advice, IRS news and filing help
• MarketWatch 2010 Taxes Guide
• Estate taxes will  rise from the dead yet
• Retroactive estate-tax fix no easy task
• Higher tax rates will cost you in 2011
• The tax benefits of refinancing your mortgage
• Can you deduct online-gambling losses?
• Unemployed? Here are 4 costly tax-filing errors
• Defaulted loans? Cancelled debt? A Tax Guide
• Itemizing vs. the standard deduction
• Avoiding IRS audit triggers and red flags
• Overpaid taxes? How to get your money back
• How to find the right tax professional
• Need free tax help? Here it is
• The best online tax-filing service for 2010
• Avoid identity theft -- file your tax return smartly

/conga/personal-finance/taxes_seo.html 96813

While the House recently passed a bill to reinstate the estate tax in 2010, this week the Senate rejected a measure to temporarily extend it. But the EGTRRA legislation will not be allowed to stand, says Larry Richman, chair of Chicago-based Neal, Gerber & Eisenberg's Private Wealth Services Practice Group.

Look for retroactive action

Richman is right. On Dec. 3, the House of Representatives voted to permanently extend the present 45% estate tax rate, and the $3.5 million, per person, exclusion from estate taxes. While everyone was expecting a one-year extension, no one was expecting any permanent legislation while Capitol Hill is embroiled in the health-care debate.

For a married couple, this means that up to $7 million worth of assets would be excluded from estate taxes. That excludes nearly 60% of all estates. Based on 2008 filings, 22,642 estates out of a total filed of 38,373 are under $3.5 million, according to IRS data.

This did not sit well with the Senate. Democrats and Republicans are at odds over the tax rate and the exclusion amount. Democrats in general are ready to approve the House version, while some Republicans prefer a lower tax rate of 35% and a higher exclusion of $5 million. The end result: The Senate did not pass an estate-tax extension.

Still, there is little doubt the Senate will tackle this in the beginning of 2010. Generally, when a law is passed, it becomes effective on the date of passage. However, this law will be an exception. In order to avoid a complete repeal of the estate tax in 2010, this law is expected to contain a provision making it retroactive to Jan. 1, 2010, according to Wayne Otchis, a certified public accountant in San Diego. Otchis spoke at a Spidell Publishing Inc. (www.caltax.com) tax update seminar in Woodland Hills, Calif. on Wednesday.

The end of the estate tax?

What if Congress does nothing and estate taxes really are repealed?

As we all know, nothing is certain except death and taxes. There is a chance that the Senate will debate this issue to death and no action will be taken at all. What then?

Bruno Graziano, a senior writer and analyst in the estate planning group of CCH, a Wolters Kluwer business, explains the implications for estates originating in 2010. In other words, for folks who die in the coming year.

The good news is, if Congress doesn't act, there will be no federal estate taxes at all. Businesses, stocks, and other assets can be passed on to heirs without being hit with tax rates as high as 45%.

The bad news?

• There are still state estate taxes to consider.

Add Comment › · Recommend (1) · Post:

Alert Email Print