California Estate Planning Blog by Kevin Staker

December 13, 2010

Most Likely Estate Tax Proposal Will Pass As Is

Filed under: estate tax,estate tax news,Kevin Staker — Kevin Staker @ 9:30 am
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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



  1. Mr. Staker, I had a question about your statement that if the exemption returns to $1M, those who made $5M in gifts in 2011-2012 would get the excess $4M added back into the estate, and thus subject to estate tax. Wouldn’t there also be a credit for gift tax paid OR PAYABLE, based on the rates in place at the time of death? It seemed to me that the gross estate would increase by $4M, but gift tax would be DEEMED to have been paid on that $4M, and thus the credit would cancel out the additional estate tax. The only effect would be to push the decedent into a higher estate tax bracket.

    Comment by Ben — December 13, 2010 @ 12:02 pm | Reply

    • Such a credit is not in the present legislation. Hence, if die after the two years sunset, no credit. Extra estate tax paid. See other comment.

      Comment by kevinstaker — December 15, 2010 @ 8:45 am | Reply

  2. They would have to deem the gift tax payment. Present law does not provide for such. Present law would apply if these tax changes are only temporary and we go back to the old law two years from now.

    Comment by kevinstaker — December 13, 2010 @ 1:03 pm | Reply

    • Going back to the $4M being grossed back into the estate and being subject to estate tax if the exemption returned to $1M in 2013 – that basically means that the $4M in extra gifts really weren’t tax-free gifts at all, but were instead gifts where the tax is merely deferred (and collected in the form of an estate tax). The final effect would be more akin an “estate freeze.” It might even work adversely against some people because paying gift tax rather than estate tax is more advantageous since gift tax reduces the size of the taxable estate.

      Also, wouldn’t this scenario potentially result in some donees seeing their gifts clawed back by the IRS long after receipt of the gift? Say a donor gifts $5M to his kids in 2011, and then the estate tax goes back to $1M/55% in 2013. Donor dies years later with only $1M left. Gross estate is $6M, and estate tax would be north of $2M. Donor’s remaining assets are not enough to pay the tax, so IRS goes after donees long after the gifts were made. This would seem a little screwed up, wouldn’t it?

      Comment by Ben — December 15, 2010 @ 1:07 am | Reply

      • I agree. Except most likely IRS could not go after donees if over three years have passed. No transferee liability.

        Comment by kevinstaker — December 15, 2010 @ 8:44 am

  3. […] Staker commented on Cusack and Gleeson’s article in his post on Estate Tax News Blog, Most Likely Estate Tax Proposal Will Pass As Is(12/13/10). Staker thinks that “It is probably over except for the shouting. . . . It is a […]

    Pingback by Baucus Supports Bipartisan Agreement, Despite Lower Estate Tax And Tax Cuts For Millionaires And Billionaires - Hani Sarji - Estate of Confusion - Forbes — December 13, 2010 @ 1:53 pm | Reply

  4. Will this Estate Tax proposal be retroactive for 2010?

    Comment by Paige — December 14, 2010 @ 1:22 pm | Reply

    • Yes. Much to my amazement.

      Comment by kevinstaker — December 14, 2010 @ 1:27 pm | Reply

  5. […] See my article of yesterday. […]

    Pingback by It Is All Over But the Shouting « Estate Tax News Blog by Kevin Staker — December 14, 2010 @ 1:52 pm | Reply

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