We Have a Tax Code. Yea! Boo!

In 2001 Congress adopted a Tax Code revision which for technical reasons expired after ten years.  The parties have been at loggerheads over permanent revisions to the Code; as far back as 2005, I wrote here that a resolution seemed near.  Perhaps in terms of Congressional action/inaction five years is “acting promptly.”  Quoting myself (summer issue, 2005):  “None of us really expect the law to remain unchanged until 2011 . . . ”  Little did I dream!  Though it is not 2011 quite yet, blink twice, and we’re there.  So much for my expectations.

In terms of the substantive change to the Code, I was a bit closer to the mark.  The personal estate tax exemption gradually grew from 2001 thru 2009 to $3,500,000 (and then mysteriously disappeared in 2010 as there is no estate tax this year); in my article I spoke of the possibility of the exemption being increased to $5,000,000.  Well, a deal has been struck, and the exemption is, ahem, $5,000,000.  Effectively, for married couples who employ the marital deduction this means that there will be no federal estate tax on the first $10,000,000.

As to the rate of tax, I said there were those who wanted to reduce it to as low as 15%, and I said it was more likely to remain at 47%.  On that I was not so prescient, as the new rate will be 35%.

So there you have it:  after floundering in the Congressional sea of uncertainty for a decade, we now have direction.  Although this compromise will be in effect technically for only two years, I believe that the estate tax portion of the Code is likely to be around for much longer than that.  (Feel free to check out my prescience on that in five years.)

Any way you slice it, this is a significant event; and it is time to pull your will off the shelf, blow off the dust, and consider where the new law leaves you.  For some, it may mean that you can simplify your estate plan; for others, particularly those with estates of $5,000,000 or greater, you may wish to reconsider your plan in the light of these changes.

— Ken Butera


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