Federal Estate Tax Changes: Update

More On Tax Planning

from The Advisor's Professional Library
  • Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
  • Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.

As discussed in a previous article "Federal Estate Tax Changes Loom," at www.WealthManagerWeb.com on Nov. 17, there has been movement by both the House and the Senate to finalize some type of solution to pending elimination of estate and gift tax on Jan. 1, 2010. Two new Bills have materialized recently; S. 2784 was introduced in the Senate and H.R. 4154 was introduced and recently passed in the House. Although these actions are a step in the right direction, they really don't help us predict either the short-term or long-term outcome of this legislative process.

Senate Bill S.2784

1. Maintains the $3.5 million federal estate tax exemption in 2010, adding an inflation index adjustment going forward,

2. maintains a top estate tax rate of 45%,

3. unifies the gift tax and estate tax exemption, and

4. offers "portability" of federal estate tax exemption between spouses.

House Bill H.R. 4154

1. Makes permanent the $3.5 million estate tax exemption (with no index for inflation),

2. maintains a top estate tax rate of 45%, and

3. prevents the switch from step-up basis to carryover basis.

Neither of these Bills is comprehensive and neither makes sweeping change (perhaps with the exception of portability), so as discussed in the previous article, the odds still seem to be favoring an extension of the current law so both the House and Senate can take the time they need next year to legislate responsibly. We will report back when there is a resolution we can plan with.

John Bock, JD, CTFA is a senior vice president and fiduciary advisor at Key Private Bank. He serves as a fiduciary expert on the relationship management team, and can be reached at john_bock@keybank.com.

Reprints Discuss this story
This is where the comments go.