LISI
Commentator Team Member Michael J. Jones, CPA is a partner in
Thompson Jones LLP (www.thompsonjones.com).
Mike focuses his practice on estate planning. He is the author of The
Pension Answer Book: Special Supplement on the Final Regulations Governing
Minimum Required Distributions (Panel Publishers, June 2002).
Mike has written and lectured extensively on advanced
estate planning topics and serves on the Editorial Advisory Board of Trusts
and Estates as Chair, Retirement Benefits Committee.
Mike brings LISI
members up-to-date on what's happening in Washington on estate tax law. And
it's all coming together very quickly!
EXECUTIVE SUMMARY:
Members of a House and Senate
negotiating committee have worked out a compromise resulting in permanently
keeping the estate tax at 2009 levels.
Specifically, individuals
could exempt $3.5-million from taxes ($7-million for couples), with amounts
above that taxed at a 45 percent rate.
This is essentially the House
version of the legislation.
LISI
has heard the full House and Senate may vote on the
budget blueprint VERY soon! (We don't have details yet on integration of the
gift and estate tax law and/or portability). We will, of course, keep you
posted.
FACTS:
SENATE ACTION:
A budget recently passed by
the Senate would have cut the estate tax by raising the exemption for
individuals to $5-million ($10-million for couples) and would have lowered the
tax rate to 35 percent.
Senators, Blanche Lincoln, D-Ark., and Jon Kyl, R-Ariz.,
proposed an amendment that would exempt estates up to $5 million per person
and levy a maximum rate of 35 percent, as long as the tax cut didn't
increase the deficit.
Every Republican and 10 Democrats voted for the
amendment. It passed 51-48.
HR 2023:
Numerous bills have been introduced but just last
week, Rep. Jim McDermott, D-Wash introduced a bill that would tax estates over
$2 million per person at a maximum rate of 55 percent. (More on this below).
CONFERENCE COMMITTEE:
When the House-Senate
conference committee met, it settled on the House version.
WHAT KICK STARTED CONSENSUS
Perhaps some of the impetus for that settlement came from
The Combined Federal and State Marginal Estate Tax Rates Under H.R. 2023
Sensible Estate Tax Act of 2009.
Mike Jones explains below the impact H.R. 2023
would have had.
H.R. 2023, introduced by Jim McDermott, a Washington
Democrat, would amend the Internal Revenue Code of 1986 to reform the estate
and gift tax.
The 2009 system uses a 45% marginal federal rate on all
taxable estates in excess of the $3.5 million applicable exclusion amount.
State death taxes may be deducted in arriving at the taxable estate.
H.R. 2023 would have sent estate tax rates to the moon by
disallowing the deduction for state death taxes, lowering the
applicable exclusion amount to $2 million (although the AEA is portable
between spouses) and adopting the following tax rate schedule:
|
Taxable Estates Over |
Federal Rate |
|
$2,000,000 |
45% |
|
$5,000,000 |
50% |
|
$10,000,000 |
55% |
Assuming state estate tax rates are the "old" state death
tax credit rates, formerly known as the "pick up tax," here are the
combined marginal rates under H.R. 2023:
|
Taxable Estates Over |
State |
Federal |
Combined |
|
$2,040,000 |
8.0% |
45% |
53.0% |
|
$2,540,000 |
8.8% |
45% |
53.8% |
|
$3,040,000 |
9.6% |
45% |
54.6% |
|
$3,540,000 |
10.4% |
45% |
55.4% |
|
$4,040,000 |
11.2% |
45% |
56.2% |
|
$5,000,000 |
11.2% |
50% |
61.2% |
|
$5,040,000 |
12.0% |
50% |
62.0% |
|
$6,040,000 |
12.8% |
50% |
62.8% |
|
$7,040,000 |
13.6% |
50% |
63.6% |
|
$8,040,000 |
14.4% |
50% |
64.4% |
|
$9,040,000 |
15.2% |
50% |
65.2% |
|
$1,000,000 |
15.2% |
55% |
70.2% |
|
$10,040,000 |
16.0% |
55% |
71.0% |
Here's how that compares to what we have in 2009:
|
Taxable Estates Over |
Old
Combined Rate (45% federal, deduction state death tax allowed) |
Rate
Increase |
Percentage Increase In Combined Marginal Tax Rate |
|
$2,040,000 |
49.4% |
3.6% |
7.3% |
|
$2,540,000 |
49.8% |
4.0% |
7.9% |
|
$3,040,000 |
50.3% |
4.3% |
8.6% |
|
$3,540,000 |
50.7% |
4.7% |
9.2% |
|
$4,040,000 |
51.2% |
5.0% |
9.9% |
|
$5,000,000 |
51.2% |
10.0% |
19.6% |
|
$5,040,000 |
51.6% |
10.4% |
20.2% |
|
$6,040,000 |
52.0% |
10.8% |
20.7% |
|
$7,040,000 |
52.5% |
11.1% |
21.2% |
|
$8,040,000 |
52.9% |
11.5% |
21.7% |
|
$9,040,000 |
53.4% |
11.8% |
22.2% |
|
$1,000,000 |
53.4% |
16.8% |
31.6% |
|
$10,040,000 |
53.8% |
17.2% |
32.0% |
So, a $4 million estate gets a 9.2% tax hike, and an $11
million estate would have been hit with a whopping 32% tax hike.
WHAT'S COMING? WHERE'S IT GOING? (IT AIN'T OVER TILL
IT'S OVER!)
Ronald Aucutt, a partner at
McGuireWoods, said that
"people interested in the estate tax should focus
on what happens as the House and Senate try to work out their differences in
the budget reconciliation process."
The most likely outcome, he says, is that the
2009 estate tax is made permanent, with the $3.5 million exemption indexed to
inflation.
Ron feels "It's also likely that Congress will
make the estate tax exemption "portable" for married couples."
Will Ron's prediction be "right"? The pot is
about to boil!
STAY TUNED TO
LISI FOR THE LATEST ON THE ESTATE TAX!
HOPE THIS HELPS YOU HELP OTHERS MAKE A
POSITIVE DIFFERENCE!
Mike Jones
CITE AS:
LISI
Estate Planning Newsletter # 1453 (April 28, 2009) at
http://www.leimbergservices.com Copyright 2009 Leimberg
Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to
Any Person Prohibited – Without Express Permission
