Many professionals reasonably believe that Congress could never do anything as outrageous as allowing the Permanent Estate Tax Repeal to expire completely on December 31, 2010 and return the exemption to where it was in 2001, when the Repeal was passed.
I believe they could. In fact, a growing number of professionals are coming to believe that expiration of the Estate Tax Repeal is our most likely future.
One plausible scenario was painted by Stan Miller, a Principal with Wealth Counsel at that estate planning organization’s national annual symposium, which I attended last month. Imagine, Mr. Miller posited, a late 2009 in which Congress is facing a 2010 with no estate tax, followed by expiration of the Repeal (what one of my clients called a “throw momma from the train” year). Further imagine that Congress is continuing to approve expensive stimulus packages while economic pressures and public pressures to hold tax increases down are strong.
The proponents of full repeal have no incentive to compromise: their billionaire constituents don’t care about the difference between a $1M exemption and a $4M exemption. The proponents of higher taxes have no incentive to compromise, they just have to wait for expiration of the Repeal.
So Congress, to avoid the “throw momma” social policy problems and the nightmarish capital gains basis problems that we will face in just a few months if they do not act, could enact a one-year”patch”. They could extend the $3.5m exemption through December 31, 2010, and then… do nothing. Allow the Repeal to expire.
I certainly understand the optimism of many clients who expect more from their elected representatives. But when 2011 rolls around, we’ll be standing by with our toolkit of estate tax planning strategies for those clients who find themselves suddenly, and taxably, “wealthy.”
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