Estate Tax

One of the interesting features of the new estate tax proposal is the inclusion of a $10 million exemption level for couples.  For this to happen the tax law for estates needs to include a portability clause which allows the surviving spouse to use the unused portion of the exemption from the first spouse who died.  With that, the Wall Street Journals Market Watch states that 99% of US families will be exempt from federal estate tax.

If the proposal passes, there may be a greater emphasis on estate tax planning at the state level as more families may owe state tax and not a federal tax.

Keep in mind there is still resistance to the tax proposal developed by President Obama and the Congressional Republicans. More time is needed to determine if the proposal has gained enough support to pass. Although the new estate tax has many groups supporting it, it appears to be the most vulnerable of all of the proposals.

Market Watch reports

For starters, consider the possibility that most Americans won’t even need a plan for federal estate taxes, especially if Congress also passes what estate planners refer to as “portability.” That’s the ability of a surviving spouse to use the unused exemption of the first spouse to die.

“There will be a significant drop-off in the business of estate tax planning, because even more people will have no significant estate tax problems,” said Howard Zaritsky, a Rapidan, Va.-based attorney specializing in estate planning. “And if Congress also passes ‘portability,’ this will very significantly remove over 99% of the public from the need for estate tax planning.”

Some years ago, a net worth of around $3 million to $3.5 million was considered the wealthiest 1% of the population, according to Martin Shenkman, an attorney and CPA who practices in New York City and Teaneck, N.J.

In a report on the tax compromise, written for Steve Leimberg’s Estate Planning Newsletter, Shenkman said: “A $5 million threshold would thus mean far less than 1% of the families would be effected. If in 2009, with a $3.5 million exclusion, only about 16,000 decedents filed a federal estate tax return, a $5 million exclusion should reduce the number to a miniscule figure.”

To read the full Market Watch article, click HERE.