Although it now appears that the federal estate tax exemption is headed to $1 million in 2011, there is a small piece of good news for taxpayers planning their estates, at least temporarily. The Senate failed to act in June on the Small Business Bill, which it will address after the July 4th recess.
What does the Small Business Bill have to do with estate planning? On June 17th, the House had passed its version of the Bill, H.R. 5297, which includes provisions restricting GRATs to less than 10 years (see this Blog, Posts dated 1/28/08, 4/21/08, 4/13/09, 5/18/09, and 5/3/10 on GRATs). If the Senate had passed its version of the Bill and the President had signed an agreed House/Senate Bill into law prior to July, shorter term GRATs would have been outlawed. Because of the delay, taxpayers likely have at least another month to consider this strategy.
Taxpayers also received a secondary benefit, which is a lower AFR (the July 2.8% rate versus the June 3.2% rate). The lower interest rate effectively means taxpayers can leave more assets to their children at a reduced or zeroed out gift tax value. However, it is unlikely taxpayers will get further reprieves as short term GRATs appear on their way out.
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