We don’t know when, but we do know estate and gift tax reform is coming sometimes in the next 13 months.  There are almost as many plans as there are Senators, but one of the most comprehensive and regressive is The “Sensible Estate Tax Act of 2011” introduced November 17, 2011 by Congressman Jim McDermott (D- WA) which contains the following provisions.

Estate Tax Exclusion Amount Would be Reduced to $1,000,000 With Top Tax Rate of 55%

Under the bill, the estate tax exclusion amount would be reduced to $1 million for decedents dying after December 31, 2011.  The $1 million exclusion amount would be indexed for inflation from 2000 for decedents dying after 2012. The top estate tax rate would be 55%, and the graduated amounts subject to the rate schedule would also be indexed for inflation. The bill includes provisions designed to coordinate with the gift tax to reflect the decrease in the applicable credit amount.

 “Portability” Would be Made Permanent

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Act”) allows portability of estate and gift tax exemptions between spouses.  However, portability under the 2010 Act applies only through December 31, 2012.

Rules on Valuation Discounts and Minority Interest Discounts Would be Modified
The proposal includes valuation rules for certain transfers of nonbusiness assets (defined as an asset which is not used in the active conduct of 1 or more trades or businesses), including:

in the case of the transfer of an interest in an entity which is not actively traded, no valuation discount would be allowed with respect to “nonbusiness assets”; and

in the case of the transfer of an interest in an entity which is not actively traded, no discount would be allowed by reason of the fact that the transferee does not have control of the entity if the transferee and the transferee’s family members have control of the entity.

There would be other changes to the rules for GRATs and limitations on the limits of GST exemptions.

While no one expects that bill to pass, it is certain that elements of it will be part of the discussion and the only thing that is certain is that the new rules will be geared toward capturing some of the enormous wealth transfers expected to take place as baby boomers age and die.

Anyone with an estate greater than a million dollars may be subject to estate taxes unless proper planning is implemented.

I have a formal 14 step process designed to protect my clients’ estates and their families from estate taxes, creditors, spouses, and spendthrift habits.  We can implement this process for you, your loved ones, or your friends.  Call me if you want to find out how.