The New Tax Bill: Estate Tax Provision

By Frank Minuti, CPA

President Obama signed the new tax bill into law recently. The tax bill is being written about and detailed in numerous articles and columns everywhere. The tax bill extends unemployment benefits for 99 weeks, extends the Bush Era tax cuts for 2 years on individual taxpayers' ordinary income, reduces Social Security tax withheld from employees and retains the 15% tax rate on capital gains and dividend income.

The bill also provides short term clarity on the estate tax. For 2011 and 2012 estates with less than $5,000,000 will not be subject to estate tax and estates greater than $5,000,000 will be subject to a tax on the amount above $5,000,000 at a top rate of tax of 35%. While this provides clarity that professionals have been waiting for, the clarity is only for 24 months.

Estate tax professionals have been waiting for the past three to five years for Congress and the White House to provide long term estate tax rules so that long range estate tax planning can be done for clients. Unfortunately with the 24 month expiration date on the estate tax rules we could find ourselves in the exact same place for estate tax in December of 2012 as we found ourselves this December. Under the new law estates of decedents dying after December 31, 2012 will be tax at the rate of 55% on amounts over $1,000,000.

I have been advising clients that once Congress and the White House provide us with clear estate tax law they should review their estate plans with their estate planning attorney. I am disappointed that Congress only implemented a 24 month patch in the tax bill. I plan on advising my clients that if their estate plan is over 5 years old they should consult with their attorney to insure that the plan is appropriate at this time. I have discussed the lack of ability to plan beyond the next 24 months with other professionals who agree that while we put off reviewing estate plans last year in anticipation of more permanent estate tax changes we should not put off reviewing the plans any further.