Back in 2001, Congress altered the law on estate taxes, creating estate tax exemptions that changed for many years. In 2008, the exemption from federal estate tax is set at $2 million. If you have one dollar moreover number, your excess will be taxed at 45 percent plus, depending upon the amount of the excess.
According to this legislation, the federal estate tax exemption amount was to increase in 2009 to $3.5 million and in 2010, the federal estate tax was abolished for a year. Although your estate might not be subject to federal estate tax if you were to pass in 2010, your estate will not receive a “stepped up” basis because year. To put it simply, your estate is “trading” the federal estate tax for the capital gains tax in that one year.
As this law now exists, in 2011, the federal estate tax exemption is arranged to come back at the $1 million
Despite that there is only one year left prior to the federal estate tax is rescinded and then bounce back with a $1 million exemption and a higher top tax rate, Congress has failed to act. Some years ago, there was a motion to abolish the federal estate tax completely, as the thought was that a person paid taxes of many ranges all their lives and must be allowed to transfer the balance of their assets tax free to their children. In spite of this truth, Congress instead entered into this compromise and has failed to place estate tax reform on the front burner.
This lack of action by Congress has triggered people to be on a roller rollercoaster, having to monitor their account variations on an annual basis to figure out how the law in that year will use to them. The conventional knowledge was that Congress would act at some point prior to the 2010 reset of the exemption to make a more long-term reform. In March, some members of the Senate Finance Committee stated a budget resolution that included a nonbinding amendment that would freeze the estate tax at 2009 levels, indicating that $3.5 million worth of an estate would be exempt (or $7 million for a couple, if effectively structured). The rest of the estate above the exemption would then be taxed at 45 percent. There have been a number of other proposals advanced, a few of which are more generous federal estate tax exemptions.
Until Congress acts, be prepared to ride the roller rollercoaster!
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