The United States Senate by a vote of 81 to 19 approved legislation on December 15, 2010, that, if enacted without amendment, would put in place a $5,000,000 asset exemption from Federal Estate Tax for each person dying on or after January 1, 2011, and with a maximum estate tax rate of 35%. This is good news given the alternative if the new legislation is not enacted.
A little background: In 2001, tax legislation was enacted that slowly increased the asset exemption from Federal Estate Tax from $1,000,000 in 2001 to $3.5 million in 2009. The tax rate was up to 55% on that portion of an estate in excess of the exemption amount that was in place in the year that a person died. Under the 2001 legislation, the Federal Estate Tax was repealed effective January 1, 2010. However, because of a quirky budget balancing provision in the 2001 tax legislation, unless Congress acts, the Federal Estate Tax as it existed in 2001comes back with a vengeance. The 2001 tax legislation got enacted because everyone presumably reasonably believed that Congress would fix the problem prior to December 31, 2009 when the Estate Tax would be repealed for a one-year period, only to be reinstated automatically with the $1 million asset exemption and 55% tax.
Without new legislation, estates of individuals dying on or after January 1, 2011, would only be able to exempt $1,000,000 in assets (including assets such as 401K benefits and death benefits under life insurance policies), and have to pay up to 55% tax on assets exceeding the $1,000,000 exemption.
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