Charting a Course: Estate Planning 2009-2011

This special report is published as a supplement to the July 2009 issue of The Tax Adviser. It looks at the status of estate, gift and generation-skipping transfer taxes over the next few years.

July 2009

by The Tax Adviser staff

Current State of the Law

In 2001, Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). This law was designed to result in the slow repeal of the estate and generation-skipping transfer (GST) taxes. Under the EGTRRA provisions, the estate and GST tax rates have gradually declined over the past nine years (see the exhibit) so that the highest rate is 45 percent this year, and there will be no tax in 2010. Similarly, the exemption amount has gradually increased, reaching $3.5 million in 2009. EGTRRA also phased out the state death tax credit over a four-year period, and in 2005 the credit became a deduction.

Under the drafters' original plan, the estate and GST taxes would have been permanently repealed after 2009. However, the forecast cost of permanent repeal was politically unpalatable in 2001, so at the last minute the congressional conference committee added a sunset provision to EGTRRA to keep the costs of the bill small enough to ensure widespread support in Congress. Under the sunset provision, the repeal will be in effect for one year only: 2010. After that, the estate and GST regime in place before the passage of EGTRRA will spring back to life, as if EGTRRA had never been enacted. This means that in 2011 the exemption will be reduced to $1 million (adjusted for inflation), the tax rate will be 55 percent, and the state death tax credit will be revived.

In 2001, it was widely assumed that Congress would not allow this sunset of the EGTRRA provisions to occur and that the estate tax repeal would be made permanent before 2010. However, while the sunset has been removed from a few EGTRRA provisions, Congress has not managed to do anything to make the repeal permanent or to change the exemption amounts or tax rates after 2010.

This article has been excerpted from the Journal of Accountancy. View the full article here.