A recently released summary of the proposed tax compromise, which has been submitted to the Senate as an amendment to the tax bill that already passed the House, contains several interesting items that have escaped the notice of most of the media thus far:
- Although Democratic opposition to the Estate Tax provisions of a $5 million exemption per person has been trumpeted, a close reading reveals a married couple has a $10 million exemption that can be moved around after the death of one spouse so that any unused portion can be used by the second to die.
- Perhaps more importantly, the proposal adopts the Unified approach to combining lifetime gifts with property passing at death. This approach was abandoned by the 2001 Tax Act. From the released summary, it is not emphatically clear, however the implication could be that whereas lifetime gifts until now had a $1 million exemption from tax; under this proposal that could rise to $5 million per person leaving tax to be paid upon the person’s death. If this proposal is adopted and if this reading of the summary holds, there will be significant planning regarding “freezing” asset values during lifetime by gifting to avoid taxation at death.
- A lesser revelation is the proposal’s retroactive date for the new estate tax rules being January 1st of this year, 2010. An election can be made to be taxed under the 2010 prevailing system of no estate tax and consequently no step up in basis.
Nothing is guaranteed, of course, and any of this might change before any bill becomes a law. Still, these are fascinating and potentially very important changes to the tax code.
For more infromation on this or other tax issues, contact the Chicago tax lawyers at Horowitz & Weinstein.