— Ben Franklin
When I read the initial news reports that you were going to amend the estate tax as part of the Tax Cut Extensions Bill (H.R. 4853), I was thrilled. Finally, you had taken some action to provide us with some rules and some guidance that would carry into the future. I had mentally started a letter of thanks to you. Then, I learned that the estate tax amendments only were for two years. Then, I saw more details that there are other revisions that will affect how estate planning is done and how documents are prepared. Then, I realized that this was just more “business as usual.”
I am writing yet again to request that you give some serious attention to the estate tax, and provide us — since we are all affected — with some clear tax rules that will apply for the foreseeable future. Your collective intransigence on this issue is unconscionable, when the limited range for potential compromise is so clear. Your failure to act leaves us to plan a year at a time, rather than for the long term. Perhaps if you were able to enact a long-term estate tax plan, Congress also could enact other long-term legislation. You might even end up with some major programs that make some sense and are not simply driven by the most potent special interest group of the moment. But I digress.
When you amended the estate tax in 2001, you created a challenge because the rules changed every few years all the way to 2010, when the estate tax was briefly repealed. When consulting with clients, I had to describe the existing rules and the changes that would occur in the rules during the next several years. Although this was a pain, it still allowed us to collectively plan; for example, in 2002, we at least knew what the rules would be in 2008. Our clients could make a rational decision and plan for at least six or seven years.
In my experience, when people sit down to prepare a will and to plan for the distribution of their assets after they are deceased, they want to know, “How much of my estate will be needed to pay taxes to the federal government?” Depending on the answer to this question, they may have the additional question, “What can I do to minimize the amount that goes to the government and maximize the amount that goes to my family, friends and charities?” If there are clear rules, an attorney can respond to these questions and help clients develop a plan. Conversely, without rules, an attorney and his client are left to guess what you might do and when you might do it, and to try to make family bequests based on our “best guess.”
So maybe all we need to know is what The New York Times reported — that with the exemptions created by Congress for the next two years, very few people will have to pay estate taxes. All they have to do is to die in 2011 or 2012. Maybe we just shouldn’t worry that in two years, when another Congress fails to take action, the rules will revert to the rules of 2001, and suddenly, the estate tax will affect a large portion of the population.
By your past actions, you have proven that the only thing we can count on is continued uncertainty and the likelihood that you will not amend the estate tax again in the next two years. It’s just not important enough to you or to the lobbyists who have your ear.
Frustrating? Yes. Who is to blame — the Republicans or the Democrats? Yes. The fact is that neither those who wish to see a stringent estate tax that affects nearly everyone nor those who would repeal the “death tax” forever have sufficient votes to bring about their desired result. Therefore, the range of acceptable compromise looks to be somewhere between the 2009 rules ($3.5 million individual exemption; tax rate of 45 percent after exemption) and the 2011-12 rules ($5 million individual exemption; tax rate of 35 percent after exemption).
How about compromising halfway between the two sets of numbers and adding an inflation factor so that these numbers can adjust upward or downward in step with the overall economy? This could set a plan and rules for 10 or 20 years; then, we could plan. And you could, too.
Originally published in The Steamboat Pilot & Today