Estate Tax Train Wreck Due to Legislative Missteps

For the past nine years, nobody thought that Congress would allow January 1, 2010 to arrive without passing a law to prevent the estate tax fiasco that we are currently faced with.

In 2001, the same rules that recently forced the Senate to pass the health care reform through reconciliation forced Congress to make the estate tax repeal temporary. Laws that cause revenue loss beyond ten years must be approved by 60 votes, but there were only 58 Senatorial votes to support the estate tax repeal. Thus, Congress passed the estate tax repeal with a sunset provision, and everyone assumed that the estate tax would not be re-imposed. But then a shift against permanent repeal occurred due to several forces, including Democratic control of the White House and Congress as well as society growing intolerant of measures that favor the wealthy.

Lawyers and clients are currently in limbo, not knowing how to execute an effective estate plan. If no Congressional action is taken, the exemption amount and rates will return to the much less favorable amounts of 2001. Everyone assumes that Congress will fix this during 2010, but then again, that’s what everyone assumed last year.

For more information, including a concise summary of the history of the federal estate tax, see Daniel Gross, The Estate Tax Mess, Columbia Law School Magazine, April 2, 2010.