The Future of the Death Tax

In 2001, the Congress adopted a 10-year plan for the death tax, also called the estate tax.  It provided for each person’s exemption to increase from $1 million in 2001 to $3.5 million in 2009, be unlimited in 2010, and return to $1 million in 2010.  The highest tax rate for amounts in excess of the exemption is 45% in 2009 and will be 55% in 2011 under that law.

Fear of what might happen if the estate tax went away, even for one year, led President Obama to campaign on freezing the exemption at $3.5 million.  That is the regieme underlying his February, 2009, budget proposal.  However, economic stimulus legislation passed last fall and in February have caused and will continue to cause massive federal deficits.  That puts the future of estate tax reform in serious jeopardy. 

The federal death tax has been repealed 4 times since it was first enacted during World War I, always returning when the Congress wanted more money to spend.  The prospect for a repeal in the foreseeable future is generally seen as nil.  Therefore, we continue to plan in ways that will work under the current law while hoping for relief from the 2011 rollback.  If you are not planning to die before 2011, that is what we recommend that you do, too.