Jim McDermott and the House Democrats introduced a bill to extend the estate tax beyond 2012. The proposal would reduce the current estate tax exemption from $5 million to just 1 million and raise the estate tax rate from 35% to a top rate of 55%.
The bill also contains restrictions on Grantor Retained Annuity Trusts :
- Minimum 10 year term;
- Annuity payment cannot be reduced from one year to the next during the first 10 years of the GRAT term; and
- The remainder interest at the time of the transfer must have “a value greater than zero.”
- The bill contains no guidance regarding the parameters of the “greater than zero” requirement.
- Effective for transfers made after the date of enactment.
The bill would also limit discount on minority interest in companies or investments:
- For the transfer of an interest in an entity which is not actively traded, no valuation discount would be allowed with respect to “non business assets”;
- For the transfer of an interest in an entity which is not actively traded, no discount would be allowed by reason of the fact that the transferee does not have control of the entity if the transferee and the transferee’s family members have control of the entity.
- Effective with regard to transfers after the date of enactment.
“It really is a question of clarity,” for both families and planners, McDermott said. “The question is how to bring fairness into it.”
Under McDermott’s proposal, co-sponsored by Rep. Charles Rangel , the exemption for married couples would drop to $2 million from current level of $10 million. A surviving spouses could still claim the remainder of their partner’s exemption if some remains unused after death. The rate and $1 million exemption would be adjusted for inflation, beginning at the 2000 level.
The bill would also unify the estate and gift taxes. That means a taxpayer would only have a single exemption of $1 million for their estate and most gifts. The legislation also includes several provisions from Obama’s last budget proposal to end targeted estate tax breaks.
While there are not many days left this year, it might be beneficial to make larger gifts today to lock in the 5 Million dollar gift exemption in place now. To discuss how this could change your existing estate tax planning, contact a Florida Estate Planning Lawyer to discuss your specifics.