New Estate Tax Proposal

On November 17, 2011, Jim McDermott (D-WA), a member of the House Ways and Means Committee, introduced HR 3467 the “Sensible Estate Tax Act of 2011”.   According to a press release by Congressman McDermott: “This legislation will take us back to an estate tax that worked during one of America’s most prolonged periods of economic prosperity. It provides the kind of certainty that practitioners and taxpayers have been calling for since the Bush tax cuts took effect. Never in our history has an exemption increased over 500% in less than a decade and known loopholes been left open for abuse. The estate tax is broken, and it’s time we fix it.”Highlights of the bill include the following:

  • The estate tax exclusion amount would be reduced to $1,000,000 with a top tax rate of 55%
  • Portability would be made permanent
  • Credit for State death taxes would be restored
  • Rules on valuation discounts and minority interest discounts would be modified
  • Consistency in value for transfer and income tax purposes would be required
  • Restrictions to GRATs would be imposed including a minimum 10-year period
  • The duration of the GST tax exemption would be limited to 90 years after the establishment of a trust

Where this will go is anybody’s guess.  I’m sure it is the first of what will be many approached to this issue.  What it highlights is the need for a flexible approach to planning.  Your trust should take into account the political climate we live in and the uncertainty that seems to follow.  By incorporating flexibility into your plan your heirs will be better able to deal with the law that exists at the time of your passing – whatever it may be.