The latest buzz from Washington does not include any resolution on the Estate Tax uncertainty for 2010 and beyond, but does suggest that two things appear to be likely: first, that the Estate Tax dilemma will not be resolved until after the November Congressional elections; and second, that the estates of those passing away in 2010 will have the option to apply the 2009 Estate Tax rules.
The first development is not all that surprising since neither party wants to be perceived as the party reinstating a tax that many people in the country are against as a matter of principal. Additionally, if a retroactive estate tax back to January 1, 2010, is implemented, Congress will almost certainly have a fight on its hands—a fight that they would prefer to postpone until after the elections.
The second development will require beneficiaries of the estates of decedents passing in 2010 and their accountants to make an extremely complex decision—whether the estate should choose to (a) apply the 2010 carryover basis and dodge the Estate Tax, or (b) apply the 2009 estate tax exemption of $3.5 million and the Estate Tax rates applicable to assets in excess of the exemption while reaping the benefits of stepped-up basis on the assets of the estate. As discussed in Newsletter #4, accepting the carryover basis will mean that when such assets are sold, the beneficiary will owe capital-gains tax on the entire difference in value from the date of purchase by the decedent to the date of sale, rather than the difference in value from the date of inheritance by the beneficiary to the date of sale.
Needless to say, the ongoing absence of any resolution being reached by Congress, or even progress towards such resolution, is a source of anxiety for beneficiaries, attorneys and accountants, and when a resolution is finally reached, it may require the executors and trustees of decedents who passed in 2010 to make some swift decisions that will have a significant impact on the tax owed by the estate or the beneficiaries.