Estate Tax Set To Come Back With A Vengeance In 2011

2010 is a great year to die if you have an estate valued at more than one million dollars

. That's because the Senate allowed the estate tax to lapse in 2010. A lapse scheduled as part of the Bush-era tax cuts. It saves heirs a 45% hit by Uncle Sam this year.

Not so for 2011. If Congress doesn't change the law prior to 2011, the estate tax will come back with a vengeance. Not only will the estate tax be back, the top rate will jump to 55% and the exemption - $3.5 million for 2009 - will be a paltry $1 million. Not only is the estate tax particularly vicious in and of itself, the lowered exemption means that it will affect up to eight times as many estates. For example; on a $5 million estate, the 2011 estate tax would be approximately $2 million.

Senators are divided among three possible solutions to this dilemma. Some favor the pre-Bush rate of %55, some 45% and others support a 35% rate with an increased exemption. Many politicos and those in the tax and accounting industry long expected Congress to address this matter, but political wisdom dictates that estate tax changes are not to be undertaken in election years for fear of angering voters and Hurricane Katrina derailed a 2005 opportunity. As a result, the estate tax has been in limbo this year. Pressure to act is likely to increase after the November elections when Congress is expected to tackle numerous other Bush-era tax breaks including capital gains rates.

As expected, the unknown is creating a nightmare for estate and tax planners as well as taxpayers. Among the unknowns is the failure of the Internal Revenue Service to issue guidance explaining current estate tax law and whether lawmakers will make retroactive changes to the law. Whatever the outcome, few see the zero tax rate persisting for very long because of the Obama administration-s massive debt accumulation. Without knowing what the estate tax is, has been or will be; some planning techniques that will work under one set of conditions may not work well under another.

One chilling potential consequence is that some taxpayers -particularly those close to death - may opt for doctor-assisted suicide prior to the end of this year. Three states - Oregon, Washington and Montana - currently allow some sort of version of the practice. Unfortunately only time will tell.

by: Jim Rizzolo

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