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Bloomfield, CT 06002
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Federal Estate Tax Update

In 2001 Congress passed the wide ranging Economic Growth and Tax Reconciliation Act of 2001 (EGTRA). One of the main provisions of this Act was to incrementally increase the "exempt” amount, or threshold, at which the Federal Estate Tax would come into play. The so-called Unified Credit Equivalent ("exempt" amount) has increased from $1,000,000 in 2002 to $3,500,000 as of January 1, 2009.

Under the terms of EGTRA the estate tax will actually disappear for the year 2010, only to reappear on January 1, 2011 with an "exempt" amount of $1,000,000. Over the years attempts to revisit and revise this law have not been successful.

However, last summer saw a bipartisan bill introduced in the Senate. That bill would freeze the estate tax at the 2009 level, that is, the threshold would be $3,500,000. The exempt amount would be indexed for inflation and would have a top marginal tax rate of 45%.

Members of the Senate have reaffirmed their support for reducing estate taxes rather than eliminating them. An amendment to increase the "exempt" amount to $5,000,000 was voted down.

Under the proposed legislation, it is estimated that only 2 estates out of every 1, 000 (0.2%) would be subject to the estate tax. Previously, Warren Buffet, chairman of Berkshire Hathaway, and one of the richest men in America, testified against the repeal of the estate tax. He suggested that the "exempt" amount be set at $4,000,000.

It should be noted that a similar bill has been introduced in the House of Representatives. That bill would freeze the "exempt" amount at $2,000,000, and would also provide for reunification of the estate and gift tax by permitting lifetime transfers up to $2,000,000. The current lifetime exemption is $1,000,000.

Congress (neither the Senate nor the House) are likely to vote on this issue this year. In order to become law the Senate and House of Representatives will have to reconcile their bills. However, in whatever form it finally passes it will take some of the guess work out of estate planning for persons with more than $1,000,000 in assets.

Regardless, it is important to note that the State of Connecticut also has an estate tax. The threshold for the Connecticut Estate Tax is presently $2,000,000, but there are no plans at this time to change the exempt amount. This could involve an additional set of issues not previously encountered.

For more information, please contact Attorney David Baram.

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