Did you know there is currently no Federal estate tax? Even the estates of decedents worth billions, for example George Steinbrenner, who recently passes away, are not expected to face estate taxes this year. This is great news for the heirs of today. Though, the question remains what will happen next.
On January 1, 2010, as part of a law set forth by congress in 2001, the estate tax was repealed. The 2001 estate tax law was created to slowly lower estate taxes. This law came at a time when estates worth more than 675,000 were taxed and the rate could go as high as 55% for assets well over the exemption level.
Each year since 2001 the tax rate has dropped while the tax exemption level has risen. In 2009 the estate tax exemption reached 3.5 million dollars with the tax rate of 45%. The 2001 tax law was planned to conclude with a repeal of the estate tax in 2010. Many expected Congress to enact a new tax law before the repeal had a chance to occur, but that was not the case.
It is uncertain what will happen to the estate tax law for the rest of this year and into next year. Some speculate Congress will create a new tax law this year, despite the short amount of time that remains to do so. If this occurs, the question exists whether or not the law would be retroactive to the beginning of the year. If a retroactive law is created, some believe it would be unconstitutional and might lead to lawsuits.
If Congress does not enact a new tax law in 2010, the tax rate is expected to return to the 2002 tax exemption level of one million dollars with a maximum 55% tax rate that was applicable in 2001.
If you feel your estate will be taxable based on next year’s expected exemption level of one million dollars, you must speak with your attorney. If the tax exemption does return to one million dollars, many estates that were not subject to estate taxes this year or for the last few years, may be subject to tax in the future.