Estate Tax Update

2010 is nearly half over and Congress still hasn't done anything about the estate tax. It expired on December 31, 2009, leaving the United States without an estate tax for the first time since 1916. It's scheduled to be resurrected in 2011 at levels unseen since the Clinton administration.

For now, someone like Dan Duncan, who died earlier this year leaving an estate worth an estimated $9 billion, can pass his estate free of any tax to his heirs. Had Mr. Duncan died in 2009, the estate would have been taxed at 45%, meaning just over $4 billion would have gone to the IRS. Had he survived until next year, when the estate tax is scheduled to come back at 55%, his heirs would have lost nearly $5 billion.

But the real losers in the estate tax mess are the merely rich, those with estates between $1 million and $3.5 million. In 2009, the estate tax exemption was $3.5 million, meaning estates under that amount didn't pay any tax. In 2011 the exemption will drop to $1 million and the 55% rate will kick in. Many of those people have set up their estate plans under 2009 rules on the assumption they would owe no tax. If they don't act quickly, they could end up losing a bundle.