New Bill Aims to Roll Estate Tax Rates Back to Pre-Bush Era Levels


By Melanie LaSota

Over the past several weeks, estate planning practitioners kept watchful eyes on the Joint Select Committee on Deficit Reduction (the “Super Committee”) in anticipation that its proposal could include drastic reductions to the current federal estate and gift tax exemptions. Now that the Super Committee has failed, those concerned with the possibility of imminent rollbacks may be tempted to breathe a sigh of relief. Not so fast.

On November 17, 2011, Congressman Jim McDermott (D-WA), a member of the House Ways and Means Committee, introduced H.R. 3467, known as the “Sensible Estate Tax Act of 2011” (the “Act”). The Act would increase top marginal estate tax rates from 35% to 55% and slash the current $5 million individual exemption to $1 million, effective for decedents dying after December 31, 2011. The gift tax exclusion would be adjusted downward in a similar fashion.

In addition to rolling estate tax rates back to pre-2001 levels, the Act incorporates several of the recommendations set forth in President Obama’s 2012 fiscal year budget proposal. In summary, the Sensible Estate Tax Act of 2011 would:

  • Make portability of unused estate and gift tax exemptions between spouses permanent; 
  • Restore the credit for state death taxes;
  • Modify asset valuation and minority discount rules to eliminate perceived abuses;
  • Require consistent basis reporting for transfer tax and income tax purposes;
  • Establish ten-year minimum terms for grantor retained annuity trusts; and
  • Limit the generation-skipping transfer tax exemption to 90 years.

Due to anticipated Republican opposition, H.R. 3467 has little chance of passage in its current form. As of this writing, the bill has attracted only one co-sponsor. Nonetheless, the Act has been endorsed by a growing number of advocacy groups including United for a Fair Economy and Citizens for Tax Justice. In today’s volatile political climate, practitioners are well advised to closely monitor legislative developments to avoid unwelcome surprises.

Michael W. Darpino, LL.M., JD, MBA also contributed to this Insight.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person any tax-related matter.

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