NU Online News Service, Dec. 10, 12:23 p.m. EDT
WASHINGTON–The bipartisan tax cut legislative package unveiled by the Senate last night would include the most generous of all the estate tax provisions talked about over the last five years.
The legislation would provide a lucrative benefit for families of people who died in 2010 by allowing them to receive a step-up in basis (which is the difference in the value of the property between this year and when it is sold in the future by the heirs) for their estates even though there was no estate tax in 2010.
According to a trust and estates lawyer who asked not to be named, "this is the biggest issue of all."
Under the law as it exists now, people who died in 2010 would have to pay no federal estate taxes. But, when the Bush-era tax cuts expire next month, they would have lost the provision under estate tax laws that allows estate beneficiaries to pay taxes when they sell inherited property based on the value of property on the date of death.
The legislation, unveiled last night, restores that. Specifically, according to a summary released by Sen. Harry Reid, D-Nev., the Senate majority leader, the proposal is effective Jan. 1, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after Jan. 1, 2010 and before Jan. 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.
Under the legislation–likely to win congressional approval despite opposition from House Democrats–for the next two years the per-person exemption will be $5 million and the maximum tax rate will be 35 percent.
It also provides for "portability," that is eliminating the complex estate-planning documentation necessary to ensure that beneficiaries of an estate get the benefits of a couple's exemption.
Under the proposed legislation, an executor of a deceased spouse's estate would be allowed to transfer any unused exemption to the surviving spouse without such planning. The proposal is effective for estates of decedents dying after December 31, 2010.
It also restores the reunification of estate and gift taxes eliminated under the 2001 legislation that phased out the estate tax by 2010, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
Prior to EGTRRA, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The EGTRRA decoupled these systems. The proposal reunifies the estate and gift taxes. The proposal is effective for gifts made after Dec. 31, 2010.
Under the legislation, the estate tax exemption will be indexed starting in 2012.
The Senate is seeking to schedule a vote on the measure for Monday.
Democrats have referred the entire bill to committee and are demanding changes in the legislation, especially in the estate tax provisions.
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