Senate Finance Committee Chairman Max Baucus, D-Mont., dropped efforts to temporarily extend the estate tax at its current level in the face of Republican opposition.

Baucus had tried to extend it for a two- to three-month period, but the effort was blocked by Republicans. Baucus said he will attempt to reintroduce the tax early next year.

The 45% tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55% rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15% to 28% when heirs sell off more than $1.3 million in inherited assets.

“Clearly the correct public policy is to achieve continuity with respect to the estate tax,” said Baucus on the Senate floor. “We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application.”

Jon Kyl, R-Ariz., and Blanche Lincoln, D-Ark., opposed Baucus’s efforts to temporarily extend the tax. They want the estate tax to be set at 35% on estates worth over $10 million.

“The fear of the unknown has taken hold in the sedate world of estate planning,” said Charles Schultz, director of private wealth and tax advisory services at RSM McGladrey.  “What was once thought of a remote possibility back in September now looks more and more likely – no estate tax passage before year-end.”

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