A January 1 repeal of the federal estate tax and generation-skipping transfer tax may be short-lived, according to Sarah Richardson Larson, a trust and estate planning attorney at Davenport Evans.
The taxes were repealed as part of earlier legislation. Congress attempted to eliminate the repeal before the end of 2009 but was unable to reach agreement, Larson said. House and Senate leaders have said they intend to enact a law reinstating the estate and generation-skipping transfer taxes once they return from Christmas recess and intend the new law be retroactive to January 1, 2010. Although a retroactive estate tax could be subject to a constitutional challenge, the Supreme Court allowed a retroactive estate tax rate increase in 1994.
The repeal affects only the estate tax and generation-skipping transfer taxes. A tax on gifts made in excess of the $1 million and the $13,000 annual gift tax exclusion amount remain in effect. Even absent Congressional action, the estate tax and generation-skipping transfer tax will be automatically reenacted on January 1, 2011. At that time, the exemption for the estate tax and generation-skipping transfer tax will be $1 million, compared to $3.5 million in 2009.
Because of the many uncertainties, Larson says people may want to wait until later this year before making any estate planning changes. That will allow time for Congress to act or, at a minimum, to assess whether there will be a retroactive law enacted. Anyone with questions or desiring to discuss their options should contact Larson or another of the law firm's estate planning attorneys.