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The Latest on the Estate Tax
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This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

By Peter Watts
July 2010


Recently there has been congressional movement on the issue of the estate tax. Senators Bernard Sanders, Tom Harkin, and Sheldon Whitehouse have introduced the "Responsible Estate Tax Act, Senate Bill 3533." In the United States House of Representatives, Representative Linda Sanchez has introduced a mirror image of the bill, the "Responsible Estate Tax Act, House Bill 5764." The bills, if enacted into law in their present form, would provide a $3.5 million exemption per individual, with a progressive rate structure. The top rate would be 55 percent, and there would be a 10 percent surtax on billionaires. Those responsible for the bill have provided a press release that details elements they believe will benefit the American people. The bill:
  • Exempts the first $3.5 million of an estate from federal taxation ($7 million for couples). This represents the same exemption that existed in 2009. Commentators have pointed out that this would mean that 99.75 percent of all estates would be exempted from the federal estate tax in 2011 alone.
  • Includes a progressive rate structure so that the very wealthy pay more. The senators point out that the rate for the value of the estate above $3.5 million and below $10 million would be 45 percent, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50 percent, and the rate on the value of estates above $50 million would be 55 percent.
  • Includes a billionaire's surtax of 10 percent. The bill also imposes a 10 percent surtax on the value of an estate above $500 million ($1 billion for couples).
  • Closes all of the estate and gift tax loopholes requested in President Obama's fiscal year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes, a modification of rules on valuation discounts, and a required 10-year minimum term for Grantor Retained Annuity Trusts. Estimates have been provided that closing these loopholes that benefit the very wealthy would raise at least $23.7 billion in revenue over 10 years.
  • Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to by $1 million for estate tax purposes under § 2032(a) (Special Use Valuation). The proposed bill increases this level to $3 million and indexes it to inflation.
  • Benefits farmers and other landowners by providing estate tax relief for conservation easements. The bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60 percent.
The recent death of Texas billionaire Dan Duncan has added an additional wrinkle to the debate over the estate tax. There are estimates that had Mr. Duncan passed away last year, the Duncan estate would owe taxes of between $4 billion and $5 billion. According to multiple news sources, Mr. Duncan's heirs have vowed to mount a legal case to oppose any efforts to make an estate tax retroactive.