Tax Law and Business Organization Strategy

Permanent Changes in the Estate Tax Introduced in the House *

We see these blurbs on a regular basis, and thought we would keep you updated on the legislative rumblings from the Hill.  Please keep watch here for any updates on this bill.

"Rep. Harry E. Mitchell, D-Ariz., introduced HR 3170 (July 25, 2007), which would permanently reform the estate tax and fix the capital gains tax rate at 15 percent. HR 3170 includes the following proposed changes, which are effective January 1, 2010, except as noted:

  • Increasing the unified credit to the equivalent of a $5 million exclusion is phased in as follows:
    • $3.75 million in 2010
    • $4 million in 2011
    • $4.25 million in 2012
    • $4.5 million in 2013
    • $4.75 million in 2014
    • $5 million after 2014
  • By reunifying the estate and gift tax exemptions, the increased unified credit applies to the estate, gift and GST tax.
  • The unified credit and GST exemption is indexed for inflation after 2015.
  • The estate and gift tax rates are reduced to the top capital gains tax rate (currently 15 percent; increasing to 20 percent January 1, 2010) on estates between $5 million and $25 million and twice that rate on estates above $25 million.
  • The $5 million definition of the top rate bracket is indexed for inflation after 2014.
  • The GST tax rate is reduced to the same as the top estate tax rate, as phased-in.
  • The executor of the estate of a deceased spouse is permitted to elect to give any unused applicable exclusion amount to the surviving spouse (usable for gift and estate tax purposes, but not for GST tax purposes).
  • The state death tax deduction is reduced in 2010.
  • The scheduled repeal of the estate and GST taxes is eliminated.
  • The present basis step-up rules are retained.

Note. This bill was referred to the House Committee on Ways and Means and has not yet been reviewed by the committee or the full House of Representatives."

* From Howard Zaritsky's Estate Planning Update,08/15/2007, Volume 07, No. 12, RIA.

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