2009 Estate Tax Changes Brewing

A bill was introduced into the house, Bill
No. 436 which could have substantial impact on the estate tax. Here are some of
the key changes proposed:

• No estate tax repeal. Estate tax is here to
  stay!

• The exclusion (amount you can give away without any
  tax) is going to stay at this year’s amount of $3.5 million. The good news
  is 98%+ of Americans will never pay a tax. For the very wealthy, the tax
  will remain significant. That being said, most people will actually suffer
  from this large exclusion. Taxpayers will become complacent about planning
  without the hammer of the federal estate tax. You still need planning, you
  still need trusts to protect your heirs against divorce, lawsuits and
  fiscal mismanagement. Watch state estate taxes. 22 states have different
  systems and you might still face a hefty state estate tax.

• The maximum estate tax rate will be frozen at the
  current 45%. Less than it had been years ago, but for those subject to the
  tax, a force to reckon with.

• For estates over $10 million the exclusion will be
  phased out.

• No discounts on non-business and passive assets. This
  will eliminate a lot of the great planning many had used to minimize the
  estate tax. This will also make asset protection much tougher to do (no
  discounts means doctors can hide away less assets in a trust before having
  to pay a gift tax for the privilege).

There is more. This is not the only bill
Congress is or will consider. Here’s some other tough tax rules on the table
for consideration:

• Curtail or eliminate QPRTs – qualified personal
  residence trusts. This has been a great tool for elderly looking to
  minimize estate taxes while keeping the investment assets they are living
  on.

• GRATs – Grantor Retained Annuity Trusts could be
  curtailed or eliminated. A much talked about change is mandating a minimum
  10% gift on setting up such a tax oriented trust. That would make this
  technique nearly useless for the super wealthy, and make it costly for
  others subject to tax.

• Retroactivity. Yep, there is a lot of chatter about
  making changes retroactive. Usually tax changes are prospective, only apply
  after the rules become law. But it seems in this economic environment
  anything might be fair play.