Majority Leader Reid (but all of this obviously drafted by Republican Senator Kyl’s staff) have added in the actual bill some extra goodies to the proposed tax law changes. We had been hearing rumors of some of this but the total are are almost as amazing as the exemption and rate amounts.
– The $5M exemption and 35 percent rate will be retroactive to January 1, 2010, unless the estate elects no estate tax but then has only limited step up in basis. This means most estates will automatically get a full step up in income tax basis unless they elect otherwise.
– Estate of surviving spouse can use the unused portion of the estate tax exemption of the first spouse to die (“portability of estate tax exemption”). Effective 2011 and 2012.
– Gift tax and generation skipping transfer tax exemptions will also be $5,000,000! Holy moly this continues to amaze. The rich will have a two year window in 2011 and 2012 to protect huge amounts of their estates from taxation for generations.
The first two add ons are pretty popular and so would likely pass. However, this last item is such a blockbuster it may be the straw that breaks the camel’s back with the Democrats. You thought you had seen open rebellion among the Democrats in the House yesterday. Just see how they react today. They will be climbing out of their skins. This provision is such a “bridge too far” as Speaker Pelosi has put it that you may lose more Democratic senators and even a Republican or two. This will give the wealthy some amazing tools for sheltering assets from the estate tax.
If all this passes, this act will be a bonanza of work for estate planning attorneys such as me.
Again, this shows how bad I can be at predicting. Until yesterday, I had been dismissing any talk of a retroactive fix of the estate tax and step up in basis.
The Act is called the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010”.
Kudos to Hani Sarji for posting the first good analysis of the actual bill, with the first links I could find on the full text of the bill and the summary by the staff of the Senate Finance Committee. These are found at his Forbes blog.