Estate Tax Repeal
Federal tax on the transfer of estates has been part of the tax law, in one form or another, since 1916. Under the latest overhaul (in 2001), the federal estate tax is scheduled for repeal effective for decedents dying on and after January 1, 2010. This scheduled repeal follows a gradually increasing estate tax exemption that starts at $1 million in 2002, reaching $3.5 million in 2009 (assuming no further action by Congress). Corresponding to the increase in the exemption is the gradual decline of the top estate tax rate-from 50% in 2002 to 45% for years 2007-2009. Then comes 2010, when the tax is repealed-but not for long. Because of complex budgetary rules under which Congress operates, the estate tax will reappear one year after its repeal-in 2011. And what will the exemption amount be in 2011? The amount of the estate tax exemption when the tax returns in 2011 is unclear, since the law purports to "restore" the exemption available under prior law. This could refer to the $675,000 exemption in effect in 2001 before passage of the law, or possibly $1 million-the amount that was scheduled to go into effect in 2006 prior to the 2001 law. One possible scenario is that Congress may make the $3.5 million exemption permanent. This $3.5 million is the amount that will be in effect the year before the tax is repealed. Also in 2011, the top rate jumps back up to 55%. Estate planning during this period from 2001 through 2009 has become more complicated-and definitely less certain. Many observers believe it's not at all likely that the 2001 law will remain intact as it now stands. As a result of this uncertainty, it is clear that one should not rely on the permanent repeal of the estate tax in current planning. Life insurance policies already purchased or being considered for estate planning purposes should remain in the picture since it's likely the estate tax will be back in some form on January 1, 2011. A second-to-die policy purchased for estate planning needs is still important, even with the top estate tax rates dropping, through at least 2009, the year before the one-year repeal. It's highly recommended that life insurance policies be maintained, at the very least to observe how these estate tax changes play out in the near future. | 
