I have taken a hiatus from writing for a while, but am so glad to be back at it. A lot of things have happened since I last wrote. None of which could be more important than the current political status of the federal estate and gift tax arenas.
Maybe this article will motivate you to do something about your own situation. Recently I had a call from an individual in the agricultural industry with more than 20,000 acres and a lot of other assets that one would necessarily assume went along with all that land. And they had no estate planning whatsoever. OUCH!!!!!!!
What is the current state of affairs in Washington D.C. regarding the estate tax? Well, my friends, that is a very good question and if I had a workable crystal ball, I would tell you. But as you can guess, I don't have such an instrument of prognostication.
But having spent a small bit of time in D.C. myself back in my younger days and trying to keep up with the goings on up there, I think I may have some insight as to what realistically might happen. Let me know what you think after you read this and digest it a bit.
As I have written before, the current “estate tax” law is in a rapidly changing state of affairs. This year of 2009, the law allows each of us to pass a maximum amount of $3.5 million estate-tax-free.
In 2010, the law changes again to allow an individual to pass everything they own estate-tax-free to their heirs or friends completely tax free. This is a one-time freebie. The richest person in the United States could leave us their billions estate-tax-free in 2010. But on Jan. 1, 2011, the law reverts back to $1 million that an individual can leave estate-tax-free. Quite a contradiction in values you might say!
But there is currently a lot of wrangling going on up on the Hill. Remember from our eighth grade civics class that all spending and tax bills originate in the U.S. House of Representatives. That is even more narrowly reduced to the House Ways and Means Committee.
Currently, Charles Rangle from New York is the chairman of that committee. He has been rumored to have said he will be satisfied leaving the exemption amount at $1 million after 2010. This could and would be catastrophic for any one at all who had even a $1 million life insurance policy not to mention someone with other substantial assets.
But on the other side of the Capitol is the Senate Finance Committee. It is chaired by Max Baucus from Montana, a large state with lots of cattlemen and ranchers. He opposes such a reversion and wants to enlarge the exemption of $7 million — per couple, reportedly. I sure hope so!
There are reportedly talks in the Senate to greatly curtail or even abolish the estate tax. Sen. John Kyl of Arizona has offered an amendment to the current Senate budget resolution which would increase the tax-free exemption to $10 million per person. This would effectively allow a married couple to pass $20 million tax-free to their families or friends. This amendment would also reduce the top rate of the estate tax to 35 percent between 2012 and 2021.
Where will the ball eventually land? I certainly do not know, but I would guess and hope that in no event would the Obama administration allow the amount to be reduced back to $1 million in 2011. This would have a catastrophic effect for everyone except estate planning attorneys and accountants.
It would seriously cut into the ability of a self-made business person or farmer-rancher to leave their toil and ingenue to their children and families. My guess is that a reversion will not happen and that a cap of $5 million might hopefully be reached with some sort of graduated increases.
This article is not meant to be political or partisan in any way. It is neither conservative nor liberal. The hope is that it will encourage you to visit your own qualified estate planning attorney who can help you to negotiate and travel the rocky and winding road of estate planning in such an uncertain environment.
If the exemption amount does fall back to $1 million in 2011, I expect I will have little time to sleep as clients will be falling from the tree limbs to get into see me.
My sincere hope is that the estate tax laws will be reasonably and intelligently worked out in the House and Senate and that some meaningful compromise can be worked out. If not, then we will have some serious issues to deal with as it is almost incomprehensible to think that any amount of wealth more than $1 million would be taxable at a 45-percent rate. Let me know what you think.
Mark Tippins is an Auburn, Ala., attorney licensed in Alabama and Florida. For questions or comments, he can be contacted at [email protected]  or (334) 821-3670.