As I wrote here, Democrats are expected to dust off some form of their past proposals for estate tax reform and try to get something passed prior to the 2008 presidential elections. So what’s the latest news on this front? Well, the North Carolina Estate Planning Blog had this post on recent public comments by Russ Sullivan, Democratic Staff Director of the Senate Finance Committee, at the joint meeting of the Estate & Gift Tax Committee and Trusts, Estates & Surrogate’s Courts Committee of the NYC Bar Association.
Congress expects to address the estate tax in the second half of 2007. The bottom line is that for any bill to pass both houses, it cannot reduce the revenues raised by estate/gift tax by more than 50% (apparently the reason last year’s proposal didn’t pass is that it cost just a little too much (it reduced revenues by 60%) for some key Democratic senators to support it). Any new estate tax law is highly likely to contain the following provisions:
Step-up in basis (the feedback regarding carryover basis has been loudly and uniformly negative)
Estate tax exemption between $3.5 million and $5 million
Estate tax rate will correspond to the capital gains rate–possibly 15% rate for the first $5-10 million and a higher rate, which "will start with a 3", for the balance over that
Exemptions will be transferable between spouses
No state tax deduction (Apparently the state governors have been terrible lobbiers–not a single one has complained about the loss of state estate tax revenues.)
There will be "offsets" in exchange for the reduction in tax rates. These are likely to include restrictions on discounts available for family limited partnerships, especially those funded with mostly marketable securities. He told us, "Take a good look at some of the proposals from during the Clinton administration."
Unclear whether the estate and gift tax will be reunified–there has been disagreement within the Senate Finance Committee staffs
If we get to 2010 and no estate tax bill has been passed, they will extend the 2009 provisions for a while–even the more progressive Democrats agree that we can’t go back to the pre-2001 law.