Obama and The Fate of your Estate

We are getting closer to some permanency in terms of future estate tax. US Congressman Earl Pomeroy (D - SD) has stated that  nearly every family, farmer and small business in America will be exempt from paying any estate tax under a bill passed by the House of Representatives on December 3, 2009.

The Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (HR 4154), authored by Pomeroy, would make  the 2009 estate tax exemption level of USD $3.5m permanent for an individual ($7m for a married couple) and a maximum tax rate of 45%.  The bill also maintains the “step-up in basis” tax rules, which protect many heirs from paying additional capital gains taxes on appreciated assets they inherit.

The bill was approved by 225 votes to 200, but must be passed by the Senate and signed by President Obama before it can become law.

Without change, the estate tax is scheduled to enter one year of full repeal (no taxes at all) in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount ($1,000,000m per person or $2,000,000 for a married couple) and a much higher maximum tax rate (55%)…ouch!!!

The one year of estate tax repeal was also coupled with the enactment of  “carryover basis” tax rules, which will require heirs in 2010 to pay capital gains taxes on inherited assets based on the decedent’s original purchase price.

Under the step-up in basis rules, continued under Pomeroy’s bill, the value of the asset is calculated at the time of the decedent’s death. It is claimed that preserving the step-up in basis rules will protect small businesses from paying an estimated $34,000,000,000 billion in capital gains taxes so who knows if this bill will make it because they could really use this to pay for bailout and TARP funds.

According to the United States Department of Agriculture’s Economic Research Service, the continuation of the$7m exemption for couples will help the vast majority of family farmers, as the average farm household’s net worth ranged from $586,000 for small farms to $2,200,000m for very large farms in 2008.

“By making the 2009 estate tax level permanent, we will make the estate tax go away for 99.75% of all percent of families, farmers, and small businesses in this country,” Pomeroy observed, concluding that: “It’s time to resolve this issue once and for all, and this bill is the fair way to do it.”

We so desperately need to know the rules of the game so we can start playing to win it again and hopefully Senate and the President can get on board and make this happen.

Untaxingly,

James Burns, Esq.