National Association of Estate Planners and Councils

April, 2007 Newsletter
Provided by Leimberg Information Services

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The Federal Estate Tax: Quo Vadis?


According to The Joint Committee on Taxation, the ten year cost of the administration's fiscal 2008 budget proposal is between $1.8 and $1.9 trillion. This would include the costs of making permanent the tax cuts that were enacted in 2001 and 2003 (the same laws scheduled to sunset in 2010).  These include the lowered capital gains and dividends rates, repeal of the federal estate tax, and child-related credits.

But it appears - at least as far as the Federal Estate Tax is concerned - the Senate isn't going to go along with the program.


Throughout the past week, the Senate deliberated some of the weighty and key issues of our complex world.  That, of course, demanded that everything stop while still more amendments - no less than five - were offered on the what must really be important, i.e., the federal estate tax.


During the Senate's consideration of the FY2008 Budget Resolution, the following five amendments were offered:

1.  Baucus Amendment: 

This proposal would "freeze" the estate tax law presently scheduled for  2009 - and extend it until 2012.  This would provide a $3,500,000 exemption and a top estate tax rate of 45%.

Result: Passed: 97-1


This proposal would (in addition to extending the capital gains and dividend rate cuts) provide a $5,000,000 exemption and a top rate of 35%.

Result: Failed: 47-51.


This proposal "would exclude proposals to extend the 2001 and 2003 tax cuts from the budget points of order created by the proposed budget resolution."

Result: Failed 46-52.


This proposal would essentially allow the Finance Committee to consider an estate tax reform proposal, but only if that reform proposal is offset (i.e. "paid for" by other revenue sources).

Result:  Failed 25-74.


This proposal would provide a $5,000,000 exemption (indexed for inflation) and a top rate of 35%.

Result:  Failed 48-51.



The Senate has now voted to reject amendments to the budget resolution that were intended to end or sharply reduce the estate tax.

It now appears both many Republicans and most Democratic Senators support estate tax reform rather than repeal. 

And almost all Senators support reducing the estate tax only if it does not increase the deficit.

The Senate also rejected (44-55) an amendment by Republican Sen. Jim DeMint to permanently repeal the estate tax - which would have increased the deficit by hundreds of billions of dollars.

Currently, the estate tax exemption is $2 million ($4 million for a couple), and the tax rate on the amount over the exemption is 45%; on average, an estate pays 19% in tax.

The estate tax will be paid by estates of individuals dying this year by less than one half of a percent of all estates.  That number will, of course, shrink even further, in 2009 when the exemption goes up to $3,500,000 per person.


Obviously, vampires are not the only creatures that are hard to kill.  Estate tax proposals are becoming a very popular national sport - very high up on lots of people's fiscal priorities.

Of course, this is all part of the budget debate process and is far from law.

But it does mean that it's on the radar and a big concern at many levels.

It's also a wonderful fund-raising issue for both parties - and the longer it goes on - the more political hay it can raise.

It's also a great diversion from the real deep yogurt we're about to wade into with both feet, the AMT.


Sooner or later, however, someone will get the idea that it's time to put this issue to rest and move on. 

It may be foolish to make predictions - especially those about the future. But here are my thoughts:

A complete repeal seems out of the question.

There are still those rooting for a $5,000,000 exemption and a 35% top rate.

But if the fiscally responsible win, in the present deficit environment (Would you vote for a complete repeal of the estate tax - that would continue on a year by year basis - for every year we had a balanced or better yet surplus -  budget?), the outcome will be an exemption of roughly $3 to 3.5 million per person and a top rate of 40 to 45 percent.

A $7,000,000 per couple total exclusion from estate tax – with no planning whatsoever is – to say the least – very generous in a time of burgeoning deficits and cutbacks in education, health, and other vital services.   This would exempt almost all Americans (except the very wealthy) from any federal estate tax - and even the most fortunate in our country - with a modicum of timely and judicious planning - would - using existing tools and techniques - still be able to shift astounding amounts of wealth to future generations.   


Level 1:  Consider, for example, that merely though a systematic lifetime program of annual exclusion gifts to children and grandchildren - leveraged with estate tax free life insurance they – or a trust on their behalf - purchase on senior family members - many many more millions could be created - estate and income tax free!

Level 2:  Ratcheting up this concept one more level, consider how much tax free wealth and next generation(s) security could be created if both wealthy spouses placed their entire $1,000,000 exemption into trust and used only the income from that $2,000,000 – plus annual exclusion gifts  - to purchase trust-owned life insurance on the life and/or lives of senior family members!

Level 3:  Up one further level, consider enhancing this "Perpetual Premium Paying Engine" with double discounted gifts of closely held S stock, LLC or FLP interests.  In other words using a combination of gifts of stock GRAT which in time pays out the stock to the PPPE, you could leverage "money value of time" discounts with minority interest/lack of control discounts – to shift income producing assets into the PPPE.  At that point, the PPPE becomes a shareholder, member, or partner and as such is entitled to its share of entity income.  That income, assuming the PPPE were held in a grantor trust (or perhaps in a partnership or LLC) could then be partially or fully used to further  supplement the income from the credit equivalent (as much as $2,000,000 per couple) and the annual exclusion gifts!  This would make it possible to purchase – particularly in the case of younger (40's to 60's) clients – many millions of additional dollars of financial security for younger generations!

Of course, there are many other estate planning tools and techniques that can be used by those who want to preserve, assure, or enhance inter-generational wealth.  These were just a few examples of how relatively easy it is - even under current law - to keep a wealthy family wealthy.


The Senate approved its fiscal 2008 budget resolution  52-47 on March 23. Although the vote was mainly along party lines, two Republicans, Senate Finance Committee member Olympia J. Snowe, R-Maine, and Sen. Susan M. Collins, R-Maine, joined Democrats in voting for the resolution.

Next up is conference after the House votes on its budget resolution sometime this week.


Steve Leimberg


Steve Leimberg's Estate Planning Newsletter #  1103 (March 26, 2007) at

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