It’s 2009. For the last 8 years I, and my fellow tax/estate planning colleagues have been talking about 2009 as a far off - mythical time - that could be (but certainly never would be) the final year of the Federal Estate Tax. That is, the final year of the Federal Estate Tax (FET) under the “Economic Growth and Tax Relief Reconciliation Act” (EGTRRA).
EGTRRA was enacted in 2001, and was President George W. Bush’s first piece of major legislation. Amongst a myriad of tax legislation (involving income tax, retirement accounts, educational savings, capital gains tax…), EGTRRA was hailed as the “death of death taxes” because it prescribed for the gradual phase out of the FET.
Since 2001, the personal exemption* for federal estate tax purposes, has increased from $1M to (new this year) $3.5M. Generally, this means that, if you pass away in 2009, your estate will not be subject to FET unless your net taxable estate exceeds $3.5 million dollars; any amount over the exemption will be taxed at a flat 45%.
And, then, in 2010 EGTRRA eliminates the Federal Estate Tax in its entirety - no more estate tax (it is not, however, the end of federal death tax).
But that’s not really the end of it because EGTRRA includes a “sunset” clause repeals (ie, “sunsets”) the legislation in 2011 (yes, one year later).
Confusing? Somewhat bizarre? I agree, so over the next few posts, we’ll take a look at the federal death tax under EGTRRA - its status, implications and (possible/probable) future.
*It’s really a “credit” and not an “exemption” - but that’s a whole other topic…
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