Congress Read My Blog!

Dec 25, 2010

I am a realist. I assume only a few people read this from time to time. But Congress? I am flattered to no end. Back in February, I excoriated them, stating that their inability to deal with the Estate Tax as it existed was inexcusable and unacceptable:

"This result is symptomatic of the immovable, political partisanship at all costs, out of touch with reality we call "representative" government in Washington, D.C. It is a situation that is untenable for U.S. citizens–clients and planners alike. Most of us are weary of the fighting, infighting and grandstanding behind these "representatives'" abuse of the statement "the American People want . . . . " The reality is they lost touch with what we want years ago. Today, I will settle for a decision. Any decision. We can at least then know what to tell clients and how to plan their estates. Congress? Are you listening? (thought not)."

I suggested that they needed to give us something – anything – to rely on for planning for our clients. My remarks included the sentiment that it wasn't that difficult to pick a number for the exemption equivalent; that I never could make sense of the de-coupling of the gift exclusion from the estate exclusion; and that it only would make common sense to index for inflation.

On Friday, December 17, 2010, after carefully reading my blog (I am certain), Congress has actually made some law that I think is almost too good to be true. There is just too much right with the estate tax provisions of the so-called "Bush Tax Cut" extension! In 1967, for some personal reasons, my mom went all out for Christmas, getting each of her children everything on their "lists" and some additional nice surprises as well. Congress seems to have followed suit this year, with a pretty nice Christmas present for estate planners and their clients.

Here are some highlights. The estate and gift tax "applicable exclusion amount" is now set at $5 million for estates of individuals dying after January 1, 2010, and has been "reunified." It will be indexed for inflation (in increments of $10,000). An additional nice surprise is the concept of "portability" has been added. Married couples may now -- rather than having to proactively plan to use each $5 million for each by creating and funding separate trusts – use each other's unused credit. The mechanics of this are not completely clear, but it looks like a much more "forgiving" solution to this problem.

The "new date of death basis" rules ("stepped up basis") has been restored. The 2010 "carryover basis" rules were a nightmare. Because of years of "stepped up basis" and for other reasons, it was clear to us as practitioners that our clients were going to have poor or non-existent records of their basis in capital assets. And, Congress never made completely clear how the election was going to be made (although they did release and then withdraw a proposed form).

The new law is retroactive to January 1, 2010. Amazingly (yes, I am a cynic), Congress also recognized the practical aspects of their waiting until the proverbial "11th hour," to address these much needed provisions. For those persons who died between January 1, 2010 and the date of the new law, the executor or administrator may elect to use the new law, or to use the 2010 provisions. And normal filing deadlines for things like tax returns and disclaimers has been extended to 9 months after the December 17, 2010 enactment date.

Thank you Congress, and Merry Christmas to you, too!


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