Reversal of Fortune: The Estate Tax Law Update
As of January 1, the federal estate tax went away for a year. Under current law, it’s scheduled to return at a higher rate next year. Personally, I’m surprised that Congress allowed the estate tax law to lapse, and I'm curious to see the ramifications.
According to the Wall Street Journal, families facing end-of-life decisions in the immediate future are finding that the change is making one of life's most trying episodes only more complex. Beneficiaries stand to inherit a lot more for a death this year than a death after December 31, 2010. The ethical dilemma is clearly significant.
Of course, what Congress giveth, Congress can taketh away. As discussed in the Journal article, the repeal of the federal estate tax is accompanied by reinstatement of the capital gains tax on property passing to beneficiaries. Previously, when property passed to beneficiaries, the property received a “step up” in basis, wiping out the capital gains tax. The net result is that many estates, including smaller estates, will be taxed anyway but it just won’t be called an estate tax.
The Journal says that the uncertainties of the new tax law (will it be changed? will it be retroactive?) are “forcing family legal advisers to craft various provisional financial-planning strategies that can be undone later if the rules do change.” According to the article, at least one person has added the prospect of euthanasia to his estate-planning mix. That might be a little extreme.
For a more conventional planning environment, we look forward to some kind of retroactive resolution.
