Cleveland, Waters and Bass, P.A.

Under current law, the federal estate tax will be repealed effective January 1, 2010. However, the legislation that provided for increases in the estate tax exemption and decreases in the maximum federal estate tax rate over the past several years also “sunsets” in 2011. As a result, under current law, on January 1, 2011, the federal estate tax will come back into effect with only a $1 million exemption and a maximum 55% estate tax rate.

Recently the Democratic party has advocated keeping the $3.5 million exemption in place past 2009, rather than increasing it to the $5 million level proposed by Republicans. Notably, neither the Democrats nor the Republicans have attempted to make estate tax repeal permanent in recent years. The outcome of the election earlier this month appears to be the determining factor as to what federal estate tax law will look like in 2010 and beyond. With Democrat Barack Obama as our President-Elect and a Democratic majority in both the House and Senate, it appears that the $3.5 million exemption in 2009 will remain in effect, with a likely maximum tax rate of 45%. One additional feature we may see in connection with the estate tax exemption is “portability” between spouses. That is, to the extent the first spouse to die does not use his or her $3.5 million exemption, the surviving spouse will be able to use it, in addition to his or her own $3.5 million exemption. We expect Congress to act on these matters in 2009. Stay tuned!