The House’s decision to extend the current estate tax rate did not come as a surprise to industry observers, who never believed the government would allow the tax to expire altogether and give up the much needed revenue.
As the estate tax law stands right now, “If you die on or after January 1, 2010 there is no estate tax,” said David A. Handler, a partner in the trusts and estates practice group of Kirkland & Ellis.
Then, in 2011 the tax will revert to a 55% tax rate with a $1 million exemption—the rate that was in place before President George W. Bush took office in 2001. “Unless Congress does something we’ll have this weird whipsaw,” Handler added. “If you happened to die in one year rather than the other you’d have vastly different results.”
The House voted 225-200 on Thursday to extend the estate tax, setting it at 45% permanently for individual estates worth over $3.5 million instead of allowing the tax to expire at the end of this year and then revert to a higher rate in 2011. The exemption for married couples is $7 million.