Confused about the federal estate tax? You’re not alone





The estate tax – a tax on the total value of your estate that transfers to others upon your death – is a controversial subject. Since the “death tax” was started in the late 1700’s it has been repealed and reinstated a number of times. In 2001 Congress passed a law that gradually changed the estate tax until it would be phased out entirely in 2010. However, under current law after 2010 the estate tax will return, and at the same level it would have been had Congress’ 2001 law never been passed. It is a confusing state of affairs for estate planners and their clients.

Lawmakers try to compromise on changes to estate tax law

In order to temper some of the chaos surrounding the pending disappearance of the estate tax for a single year, President Obama proposed reinstating the estate tax at 2009 levels. This means that estates under $3.5 million (per person) would be exempt from the estate tax, and the maximum tax level for those worth more than $3.5 million would be 45 percent. The House of Representatives agreed that this was a good plan and included it in their version of the budget resolution. The Senate, however, has its own ideas about what is best.

Two Senators – one Democrat and one Republican – proposed exempting estates up to $5 million and capping the estate tax at 35%, as long as the federal deficit was not increased. Others in the Senate agreed, and the amendment passed. However the amendment may not stick, as other Senators are trying to get their own amendments passed. One that would be bad news for wealthy Americans would lower the exemption ceiling to $2 million and cap the estate tax at 55%.

Changes in store for married couples?

Another change proposed to the current estate tax is its portability. Married couples can shelter up to $7 million total from the estate tax, as each spouse is eligible for a $3.5 million exemption under today’s law. The problem comes when the spouse with the smaller portion of the estate dies. In this scenario, the surviving spouse is left with their larger estate, but only a $3.5 million exemption. Because their spouse died they now face a much larger estate tax rate upon their death.

Some lawmakers have proposed making the estate tax exemption “portable”, so that it can be passed on to the surviving spouse. This means that even if one spouse dies, the remaining spouse could use what is left of the deceased spouse’s exemption. For example, if one spouse dies and uses only $1.5 million of their exemption, the surviving spouse would be left with a total $5.5 million exemption (their own $3.5 million plus the deceased spouse’s remaining $2 million).

However, don’t expect to see this change enacted any time soon. While wealthy Americans would be happy to see a change like this pass, in reality only one-quarter of one percent of all estates will be subject to the 2009 estate tax. With such a small group to worry about, lawmakers probably won’t be in a hurry to offer them a tax break.

If you have questions about any estate planning or elder law matters in Pennsylvania, please contact the Pennsylvania law offices of Shields and Boris.

Elder Law Offices of Shields and Boris

109 VIP Drive

Suite 200

Wexford, PA 15090

Toll Free: (800) 879-0984

Phone: (724) 934-5044


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Elder Law Offices of Shields and Boris
109 VIP Drive
Suite 102
Wexford, PA 15090
Phone: (724) 934-5044
Toll Free: (800) 879-0984

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