Estate Tax Reform – Presidential Candidate Views

Congress needs to take action in 2009 concerning estate tax reform.  Under current law, there is no estate tax in 2010, but returns in 2011 with a $1 million exemption and 55% tax rate.  For 2009, the exemption is $3.5 million and 45% top tax rate.

Both Presidential candidates oppose keeping the current law.  The main points to settle are the top tax rate and the exemption.  Obama favors a $3.5 million exemption and McCain favors $5 million.  McCain favors a top tax rate at 15%, while Obama is at 45%.

It’s probable at this point that the Obama rate will prevail since the Democrats control Congress.

Both candidates support making the exemption amount portable.  When one spouse dies, the unused exemption would pass to the survivor.  This item would greatly simplify planning, for example, couples would not have to retitle assets to equalize their estates.

Under current law any unused exemption is lost.

Asset values at date of death would be continued to be used.  Under current law, this provision expires at December 31, 2009.  If the law isn’t changed, taxpayers would have to use the decedent’s income tax basis( in most cases –original cost)  for inherited assets starting in 2010.  This will cause much estate and tax planning nightmares.

Expect estate tax legislation early in the new presidential term.