Tuesday, November 24, 2009

Update on Estate Tax Reform Bills

Below is a summary of the most recent bills introduced in late October and November of 2009 that would have an impact on the Federal Estate Tax as we now know it. As the law currently stands the Federal Estate Tax is set to be eliminated for estates in 2010, with a sunset of prior law with low exclusion amounts and higher tax rates returning in 2011. There have been many proposed bills this year to make permanent or at least make a temporary change for 2010.

Below is a summary. More detailed information and actual bill language can be found at http://www.govtrack.us/.

1) H.R. 4154 – proposed by Rep. Earl Pomeroy (D – ND) on 11/19/09 titled Permanent Estate Tax Relief for Families, Farmers, and Small Business Act of 2009.

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Replaces (and hopefully eliminates H.R. 436 introduced 1/1/09 which had significant restrictions in valuation discounts often used by estate planners).

2) S. 2784 – proposed by Sens. Thomas R. Carper (D – DE) and George V. Voinovich (R – OH) on 11/17/09.

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Indexed for inflation.

3) H.R. 4015 – proposed by Rep. Jerry McNerney (D – CA) on 11/4/09

  • Would make permanent the $3.5M applicable exclusion amount.
  • Would freeze estate and gift tax rates at 45%.
  • Indexed applicable exclusion amount would be indexed for inflation rounded to nearest multiple of $10,000.
  • Change to IRC §2057(a)(2) – family-owned business interests deduction increased to $8 Million.
  • Exclusion of farmland from estate tax if use continues as farmland for 8 years following death of decedent and material participation by family members.

4) H.R. 3905 – proposed by Rep. Shelley Berkley (D – NV) and Kevin Brady (R – TX) and Artur Davis (D – AL) and Devin Nunes (R – CA) on 10/22/09.

  • Provides for increasing applicable exclusion amounts: 2009 ($3.5M) to 2019 ($5.0M), indexed for inflation thereafter.
  • Provides for decreasing tax rates:1% decrease each year starting at 45% in 2009 reaching 35% in 2019 and staying at 35% thereafter.

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