Thursday, January 21, 2010

What's next for the estate tax?

The Republican gain of a Senate seat, and with it the power to filibuster, will affect the debate over the estate tax. I suspect that it makes a deal to the Senate's liking more probable. That would mean a $3.5 million exemption rising to $5 million over the next ten years. It might also include portability of the exemption for married couples.

I also think that retroactivity becomes less likely, and the longer they wait the worse the retroactivity problem becomes.

The U.S. Supreme Court has said that taxpayers have no right to rely on the tax code, a position that I find preposterous.

Let us say that Mr. Got Lotsarocks dies today with an estate of $10 million. He didn't plan for a date of death in reliance on no estate tax in 2010, so perhaps we don't feel too badly if the estate tax is retroactively applied to his estate. But now let's say that the entire fortune passes to his wife (so there was never any danger of estate taxation anyway). Her advisors tell her to disclaim most of the inheritance so that it passes tax free to their children. If she does, she really is relying on the absence of the estate tax, and if it is applied retroactively the family fortune will be hammered.

I don't think this situation is preposterous. I also think that estate planners could be in some jeopardy if they guess wrong about what Congress does.

No comments: