Back in 2001, Congress changed the law on estate taxes, producing estate tax exemptions that altered over the years. In 2008, the exemption from federal estate tax is set at $2 million. If you have one dollar more than that number, your excess will be taxed at 45 percent plus, depending on the amount of the excess.
According to this legislation, the federal estate tax exemption quantity was to increase in 2009 to $3.5 million and in 2010, the federal estate tax was eliminated for a year. Despite the fact that your estate may not be subject to federal estate tax if you were to pass in 2010, your estate will not receive a “stepped up” basis in that year. To put it simply, your estate is “trading” the federal estate tax for the capital gains tax because one year.
As this law now exists, in 2011, the federal estate tax exemption is arranged to come back at the $1 million
Despite that there is just one year left before the federal estate tax is rescinded and then springs back with a $1 million exemption and a greater leading tax rate, Congress has failed to act. Some years ago, there was a motion to eliminate the federal estate tax entirely, as the idea was that a person paid taxes of many ranges all their lives and need to be enabled to move the balance of their properties tax totally free to their kids. Despite this truth, Congress rather entered into this compromise and has stopped working to put estate tax reform on the front burner.
This absence of action by Congress has actually caused people to be on a roller rollercoaster, needing to monitor their account fluctuations on a yearly basis to determine how the law because year will use to them. The standard wisdom was that Congress would act at some point before the 2010 reset of the exemption to make a more long-term reform. In March, some members of the Senate Finance Committee stated a budget resolution that consisted of a nonbinding amendment that would freeze the estate tax at 2009 levels, implying that $3.5 million worth of an estate would be exempt (or $7 million for a couple, if effectively structured). The remainder of the estate above the exemption would then be taxed at 45 percent. There have actually been a variety of other propositions advanced, a few of which are more generous federal estate tax exemptions.
Until Congress acts, be prepared to ride the roller coaster!