It looks as if President Obama and Senate Republicans may have struck a temporary deal addressing the expiration of the Bush era estate tax reforms.
As you may recall, the so called “repeal” of estate taxes passed by President Bush in 2001 was a one year deal only. Specifically, the 2001 law “repealed” estate taxes, but only for calendar year 2010. On January 1, 2011, the “repeal” is scheduled to “sunset” and the law as it existed in 2001 will be reinstated. Under the 2001 law, an individual can only pass at death the first $1,000,000 in assets tax free. Anything over that amount is subject to estate taxes taxable at a maximum rate of up to 55%. The scheduled reinstatement would have the effect of making many previously nontaxable estates all of a sudden taxable.
Under the deal announced today, individuals will be permitted to pass up to $5,000,000 tax free, with the maximum estate tax rate of 35%. This is much more taxpayer favorable than the law that is presently scheduled for reinstatement. The new deal would be temporary, lasting only through the end of 2013, but hopefully that time would give Congress an opportunity to pass permanent estate tax legislation.
This deal, however, is by no means done. The House Republicans are already issuing news releases noting that they have not considered the proposal and will need to do so before voting on the measure. In addition, President Obama will need to twist some arms on his side of the aisle too as many democrats will no doubt have issues with what they perceive to be a tax break for the rich. Still, this most recent development represents the most promising opportunity to hopefully fix the train wreck that will occur to many carefully planned estates on January 1, 2011 absent Congressional intervention.