Back in January, we believed we would now be reporting on what Congress had done with respect to the estate tax. However, Congress hasn’t done anything, being embroiled in debate over healthcare. Therefore, the estate tax, along with the generation-skipping tax are still expired, but will reappear on January 1, 2011 at much higher rates and with lower exemptions, unless something is done later this year. The gift tax is still in place, but the rate dropped to 35% in 2010 from 45% in 2009. As of right now, estates will not receive the step-up in basis that they received before, although there is an allowance for a $1.3 million increase in the basis of appreciated assets.

Leading Democrats were still vowing to reinstate the estate and generation-skipping taxes retroactively to January 1, 2010. However, it is unknown what the tax rates and exemption levels would be, how long they would last, or if this can actually be accomplished without being unconstitutional.  

Our best guess (and it is still a guess) is that the estate tax will be retroactively reinstated at 2009 levels of exemptions of $3.5 million (which may be indexed for inflation) and a tax rate of 45%.  

Conclusion

All of this is still creating estate and gift planning dilemmas. Therefore, our best advice, again, is to seek out experienced estate planning professionals and adhere to their advice. All of the changes could create opportunities that could be quickly extinguished, so it could pay well to be ready to take advantage of these opportunities as they come along.  

• Estate of Shurtz v. Commissioner (filed 2/3/10)
  
  
• Price v. Commissioner (filed 1/4/10)
  
  
• Estate of Black v. Commissioner (filed 12/14/09)
  
  

• "Choose Your Experts Carefully: Evaluating the Proposed Regulations on the Alternate Valuation Date in Light of Kohler", by Brian E. Surratt, 10 Hous. Bus. & Tax L.J. 166, 2010
  
  
• "The Valuation of FLPs: What Does the Tax Practitioner Need to Know?", by Linda B. Trugman, 1-10 T.T.A. 38, January 2010
  
  
• "Select Planning Strategies for the Family Business Owner (With Forms)", by Eric A. Manterfield, The Practical Tax Lawyer, Winter 2010