As many of you know, the estate tax is supposed to be eliminated beginning January 1, 2010. This elimination is in effect for only one year, however, and in 2011, the estate tax is scheduled to return -- and return in a big way. In 2011, estates greater than $1M could be subject to taxation. (As a point of reference, in 2009, estates greater than $3.5M are potentially subject to taxation.)
Nobody really expects that the one year suspension of estate taxes will actually happen. Most people expect that at some point this year Congress will set a relatively high estate tax limit and then increase that limit in subsequent years to account for inflation. The big question is --what might that limit be? Numbers between $3.5M and $5M have been in the press for months.
It's beginning to look like the limit might be the $3.5M that is in effect this year, but with one really important change. The change would be that if one spouse doesn't use his or her $3.5M exemption, the surviving spouse could "carry over" the unused amount. That means that a married couple could avoid taxation on up to $7M without having to have expensive and complicated trusts drafted. In addition, couples wouldn't have to go through the arduous process of re-titling their assets to be sure that each spouse held assets worth $3.5M.
When will the new exemption amount be announced or voted on? That is still unclear but keep an eye on a bill introduced by Senator Max Baucas, the top tax writer in the Senate. Something will have to be decided by the end of this year and hopefully it will be this summer or early fall so people can begin to plan accordingly.
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