The estate tax was repealed in 2010 due to a provision in the Economic Growth and Tax Relief Reconciliation Act of 2001, a body of legislation that is commonly referred to as the “Bush tax cuts.” However, under the existing laws the estate tax was set to return in 2011 with some very harsh parameters. The exclusion was to be just $1 million, and when we last saw the tax in 2009 it stood at $3.5 million. So estates valued at more than one million dollars but less than $3.5 million were going to be exposed to the tax in 2011 when they were safe from it in 2009 and 2010. What’s more, the rate of taxation in 2011 was scheduled to be a very hard to justify 55%; it was 45% in 2009.
There had been a lot of talk about the possibility of changes in the laws surrounding the estate tax being enacted in the eleventh hour, and this has in fact taken place. A new tax bill has passed through Congress extending the tax cuts of 2001, and one of the provisions in the bill is an alteration of the estate tax exclusion amount and rate of taxation. The new exclusion is going to be $5 million per person so that a married couple will have a $10 million exclusion. Any portion of your estate that exceeds that amount will be subject to the estate tax. But rather than the 55% we were anticipating, the top rate has been reduced to 35%.
Of all the provisions in the bill, the changes in the estate tax parameters were the sticking point that disturbed many lawmakers the most. It is not hard to understand their logic since Americans with estates values at between $1 million and $5 million ( $10 million per couple) have already assumed an enormous tax burden throughout their lives while helping to stimulate the economy with robust participation. Many Americans can rest easier due to the passage of the new tax bill. But beware, this new law expires at the end of 2012.