December 9, 2011

Estate Tax Legislation

The Estate Tax is definitely one estate planning topic that captures the attention of many. The following are two competing bills that seek to amend the Estate Tax. I contrasted three main topics of the Estate Tax, and the Gift Tax because of its close association to the Estate Tax, that each bill addressed.

I am by no means endorsing or opposing either bill in any way.

Rep. Jim McDermott (D-Wa), The Sensible Estate Tax Act Of 2011.

1.    Applicable Exclusion Amount

The applicable exclusion amount for 2012 is slated to be $5M plus inflation. Rep. McDermott's bill would decrease the applicable exclusion amount to $1M in 2012.

2.    Estate Tax Rate

The Estate Tax rate is currently set to be 35% for 2012. Rep. McDermott's bill would increase the Estate Tax rate to 55% for 2012.

3.    Gift Tax Exemption

Rep. McDermott's bill would peg the Gift Tax exemption to the Estate Tax exemption. Hence, if the Estate Tax was $1M, since Rep. McDermott's bill passed, then the Gift Tax exemption would also be $1M.

Rep. Kevin Brady (R-Tex), The Death Tax Repeal Permanency Act Of 2011.

1.     Applicable Exclusion Amount

Rep. Brady's would repeal the Estate Tax. Therefore, no tax would be imposed on a decedent's estate, regardless of the size, for the estates of decedents dying on or after the date of the enactment of the Death Tax Repeal Permanency Act of 2011.

2.      Estate Tax Rate

Since Rep. Brady's bill would abolish the Estate Tax, then clearly there would be no Estate Tax rate. For clarity's sake, Rep. Brady's bill would effectively make the multiplier "0."

3.    Gift Tax Exemption 

Rep. Brady's bill would make permanent the $5M Gift Tax exemption.