The Uncertain Future of Death and Taxes in 2010

In Estate Planning, Tax Planning by Sarah E. Martello

“In this world, nothing can be said to be certain except death and taxes.”  ~Benjamin Franklin~  With the estate tax existing as staple in revenue production since 1916, the controversial repeal of such marks a historical period of uncertainty when it comes to death and taxes.

Many speculated that Congress would enact interim Legislation preventing a complete repeal of the estate tax in 2010; however, their failure to act has created an array of complications and confusion.    Because the underlying legislation encompassing the repeal is everything but logical, the short-lived repeal will sunset (expire) at midnight on December 31, 2010.  But to really understand the complexity of the estate tax repeal and the resulting problems, I find it necessary to understand the process that accomplished this obscure, one year repeal.

In 2001, the newly elected President Bush, committed to following through with his campaign promises of tax cuts and repeal of the estate tax, introduced the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).  EGTRRA called for a number of tax cuts that would phase-in over a number of years.  The repeal of the estate tax was merely a legislative concession.

Prior to EGTRRA, there were several attempts to repeal the estate tax that failed to gain Congressional support.  Because the repeal supporters knew from experience that a bill calling for repeal would never get passed, they slipped the repeal into one of EGTRRA’s many amendments by utilizing the reconciliation process.  The reconciliation process allowed the Senate to pass the amendment with just a majority vote (instead of the typical super-majority vote required) and avoid budget constraints.

The caveat is that a reconciliation amendment cannot decrease revenue beyond a ten-year period unless offset by specific spending cuts or revenue increases.  With EGTRRA forecasting a revenue loss of $1.35 trillion, the ten-year limitation (known as a sunset provision) mandated an automatic termination of the bill at the end of the ten-year period.

So here we are, almost ten years after EGTRRA’s enactment, facing an uncertain future and a dismal economy.  As our country faced one economic blow after another over the past 10 years, the CBO’s projected $5.6 trillion surplus for the 2002-2011 fiscal years has plummeted to a growing $10 trillion deficit.  And so the debate rages on…Should the tax cuts be extended or should Congress do nothing and let them expire?

Although it seems logical that a repeal of the estate tax would decrease the need for estate planning, the opposite is true.  With the clock ticking and no resolution in sight, estate planning attorneys are left scrambling to ensure their client’s estate plans provide for a multitude of alternatives to account for the legislative uncertainty.

Maybe Congress is attempting some kind of twisted population control initiative… kick the bucket this year and the government will give your estate a tax holiday…