Estate Tax Legislation?

Two influential Senate Finance Committee members, Chairman Max Baucus (D-Mont.) and Sen. Charles Grassley (R-Iowa), were busy last week on estate planning matters relevant to all of us. On March 26, Sen. Baucus introduced legislation to extend the $3.5 million exemption amount and the 45% tax rate beyond 2009. During his campaign, President Obama also indicated he was in favor of a $3.5 million exemption and a 45% tax rate. Absent legislation, there is no estate tax in 2010 and then in 2011 the exemption amount reverts to only $1 million and a maximum estate tax rate of 55%. Also of note, Baucus' Bill would unify the estate and gift tax exemption amounts at $3.5 million in contrast to current law, which provides $3.5 upon death but only $1 million for lifetime gifts (aside from the $13,000 annual exclusion).

On March 25, Grassley also commented on the need to add permanence to the estate tax law. Grassley, however, still desires a permanent repeal of the estate tax, although that is unrealistic in today's economy and political landscape.

It is interesting that, over on the House side, Charles Rangel (D-N.Y.), the head of Ways and Means, told reporters last week that estate tax is not even on his Committee's agenda. According to the March 26 BNA Daily Tax Report, apparently there are other House members that are concerned that a permanent extension of a $3.5 million exemption amount would lose too many tax dollars in these hard times.

Whatever may happen needs to happen this year before the 2010 one-year estate tax repeal (along with the confusion caused by the elimination of the step up in basis for income tax purposes).