It is probably over except for the shouting.
House Majority Leader Hoyer is stating he believes the House will pass the Tax Bill as written and as will be passed by the Senate with possibly some amendments to the estate tax provisions. That would likely mean amending the bill to go back to the 2009 law: $3.5M exemption, 45 percent top rate, and only $1M gift tax exemption. The bill would then go to a House Senate conference committee where the Republicans would say the estate tax amendment is unacceptable. The Democrats will blink and capitulate. This is a better bill than they will get in the next Congress. And that will be it.
The Hill has a good analysis of the three possible scenarios.
It is a shame the change is only for two years. It is possible, if not likely, the new rules will someday become permanent. However, the temporary nature of these changes will make estate planning continue to be very difficult for anyone with over $1M in assets. The reason is if there is no agreement two years from now, we will go back to a $1M exemption with a 55 percent, really 60 percent, top rate. What would happen then is if someone uses the new $5M gift tax exemption, they pay no gift tax now. However, if the estate tax exemption is only $1M when the die, the extra $4M in gifts will be “grossed up” and included in their taxable estate, and so be subject to estate tax. In addition, I do not even want to think about what would happen if they had given away the $5M to grandchildren and we would after death have to deal with the generation skipping transfer tax.
The Republicans may think they are helping small business in relation to the estate tax. However, the uncertainty will only make things worse.
By Kevin Staker