As we have previously discussed, the year of 2010 has been somewhat unusual in that the federal estate tax disappeared completely under legislation that was enacted earlier this decade and was never modified by Congress. While some have wondered if Congress might step in at the last moment and retroactively apply the tax to 2010, the odds of that happening look to be quite slim. However, as we look forward to 2011, we are forced to recognize the return of the federal estate tax.
Of course, the estate tax is not only coming back, it is also taking a step back in time with higher tax rates and lower exemption levels than we had previously seen. As of today, and barring any Congressional action before January, the tax rates are scheduled to be reintroduced at between 55 and 60%, as opposed to the 45% rate we saw in 2009.
Moreover, the exemption amount, the threshold over which the value of an estate will be taxed will fall from the $3.5 million level of 2009 to only $1 million in 2011. Consequently, far more people may fall within the reach of the estate tax in 2011 than did in 2009.
In the end, there is still much uncertainty regarding the future of the estate tax. With a large political shift taking place in January, we are sure to see some calls for the complete repeal of the tax, as well as a strong push to at least change the rate and exemption amount.
Regardless of the uncertainty surrounding the tax, this is still a good time to take stock of your assets and create estate plans. Making arrangements now can help you account for whatever changes might take place down the road.
In our next post, we will discuss a few of the common strategies individuals might use to address the coming estate tax changes.
Source: U.S. News & World Report, Size up your estate plan and do some tax planning, Kimberly Palmer 12/1/10