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Increased Exemption Possible?
By Robert Giese
bob.giese@chsfl.org
Senate Finance Chair Max Baucus (D-MT) has been in intensive negotiations with Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) over the estate tax. Sen. Kyl and Sen. Lincoln have proposed increasing the $3.5 million exemption that was applicable in 2009 to $5 million per person. In addition, the previous estate tax rate of 45% would be reduced to 35%.
Ongoing Negotiations
Negotiations have been ongoing for several weeks. On May 11, 2010, Sen. Kyl reported, “We have an agreement about how we would like to move forward and an agreement on many of the offsets.” He continued by observing that the offsets are still subject to discussion. It is estimated that the offsets will be from $60 billion to $80 billion.
An Option
While the details of the proposed compromise have not been released, several aides suggested that it may include an estate tax option in 2010. If the option is enacted, lawyers, financial and estate planners could choose either the repeal of estate tax and lose part of the step-up in basis under the 2010 rules or select the new compromise estate exemption and estate tax rate.
Assessment
It may occur that the tax extenders and the estate tax are combined in one legislative bill. Senate Budget Chair Kent Conrad (D-ND) observed this week, “You have got 13 legislative weeks. It seems to me it would be wise to put all the tax measures together.”
Conclusion
The House proposal for the offsets for the tax extenders (including the IRA charitable rollover) is to change the “carried interests” of hedge fund managers from being taxed at capital gain rates to ordinary rates. It now is possible that the change in the law will occur, but it may be phased in over a number of years.
Editor’s Note: The Senate continues to attempt to complete work on the estate tax and the tax extenders by early June. The estate planning community and the charitable community are both hopeful that the Senate will resolve the current great uncertainty in planning by passing compromise legislation in both areas.
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Filed under: Breaking News, Estate Planning, Taxation | Tagged: Blanche Lincoln, estate tax, estate tax exemption, Jon Kyl, Kent Conrad, Max Baucus, Robert Giese | 4 Comments »
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