Estate Planning

Updates on the Federal Estate Tax Law

Recently, there was a report that President Barack Obama and Democratic legislators prepared to freeze the estate tax at the present level of $3.5 million exemption per estate, which would prevent the momentary one year repeal of federal estate taxes in 2010, with the income tax return in the following year with only a $1.0 million exemption, in addition to a tax rate of as much as 55%.

The U.S. Chamber of Commerce recently advised President Obama to repeal the tax for good. The Chamber apparently senses that the tax threatens a little service whose proprietor passes away, leaving a variety of financial obligations behind, consisting of the Federal Estate Tax problem, that could force the owner’s family to liquidate the family business.
Towards the end of January, Rep. Earl Pomeroy introduced HR 436, which would cap the federal estate tax exemption at $3.5 million and set the tax rate for estates that surpass that amount at 45% (50% for estates between $10 million and $23.5 million). This part of the bill is open to the majority of people, assuming that Congress will not completely rescind the Federal Estate Tax, as the U.S. Chamber urges.

The problem with the costs is that the law would be altered to not enable an appraiser to take any discounts for a minority interest or lack of marketability in an entity that is not actively traded. If you own a 10% interest in a collaboration, your estate would report that you owned that 10% and worth it at 1/10th of the total fair market value of the underlying assets, even though you do not have any control of the partnership and do not have the ability to sell your interest. If you did have the capability to offer your interest, the potential purchaser would most likely use you less than 1/10th of the fair market value of the underlying possessions, considering that you do not have control and there is a minimal market.
This implies that your estate will reveal the full 1/10th of the complete fair market price of the underlying assets, despite the fact that if such possession were offered, your estate would be paid less for it.

While the usage of discounts has actually been a subject of abuse in certain cases, it is obvious that discounts ought to be permitted to mirror financial truth in following what a ready buyer would pay a willing seller where there is a minimal market for the interest and no control. Hopefully, this part of the expense will be changed prior to it ends up being the law of the land.