On June 12, 2002, the United States Senate defeated a proposal to make the scheduled repeal of the federal estate tax permanent. While the proponents of the repeal passed such legislation in the House of Representatives and garnered a majority of votes in the Senate (54 to 44), the votes fell short of the number needed to overcome the budgetary hurdle of 60 votes necessary to advance the measure under Senate rules.
Accordingly, the estate tax relief afforded in the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "Act") continues to remain the law of the land. Under the Act, in addition to unlimited gifts to spouses, the total amount each person may give at death without paying transfer tax (the "exemption amount") is $1 million in 2002 and gradually increases to $3.5 million in 2009, while the transfer tax rates gradually decrease from 50% in 2002 to 45% in 2009. Thereafter, in 2010 the estate tax is repealed. However, as the law currently stands, the Act "sunsets" at the end of 2010 and the estate tax will then revert to the laws in effect in 2001, unless Congress takes action before then.
Many married couples have estate plans that contain marital bequests and gifts based upon the exemption amount. In many instances, in order to take advantage of both spouses' exemption amount, each spouse would leave to the other his or her exemption amount in a trust, with everything else passing outright to the surviving spouse. Under the Act, the amount in the exemption trust may be quite large ($3.5 million in 2009 as opposed to what was $675,000 in 2001). Accordingly, the bequest to the exemption trust might be larger than anticipated.
If you wish to consider how this legislation impacts you or otherwise update your estate plan, you may contact Neal T. Dorman, Esq. in our Trusts and Estates Department to schedule an appointment.
