Wednesday, January 14, 2009

Obama and the Estate Tax

President-elect Barack Obama and other Democrats want to keep the federal estate tax in place, rather than accepting its planned repeal in 2010. The tax was set to be repealed in January 2010, with a restoral to pre-2001 rules in 2011. It has been very difficult to create long-term estate plans in light of such uncertainly.

But it looks like the attempts to repeal the estate tax ended in final defeat in 2007. The focus instead is on reform.

The various proposal include:
A higher estate tax exemption.

Indexing exclusion to adjust for inflation\Reintegrating the estate and gift tax exemptions

Allowing a surviving spouse to take advantage of a deceased spouse’s unused applicable exclusion amoung (portability)

Restoring the state tax credit and repealing the state tax deduciton.

Limiting perpetual dynasty trusts by making the GST exemption only generation of skips.

Eliminating the use of valuation discount planning for investment assets

Eliminating or limiting the use of Crummey withdrawal powers.

Portability and a 3.5 million estate exemption will probably simplify planning for a lot of people. But they still can’t provide shelter for income and growth in assets, or provide other benefits associated with a trust such as asset protection, and safeguards in the event of a second marriage. So in spite of all the current uncertainty, estate and tax planners should be looking forward to long and rewarding careers.

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