Holiday Greetings - December 31, 2009

With all of the focus on health care, Congress will apparently let the estate tax lapse.

They also let the standard end of year tax extender fall off the radar, too. There goes the IRA charitable rollover, for now.

Oh well.

RE: the estate tax. Some victory against the death tax. What the idiots crying about the so-called death tax never say is this:

#1 - in 2010, estates will start paying capital gains tax on capital gains over $1.3 million (we had an unlimited step-up in basis at death until now). Who knows, maybe this will generate more money for the government than the dreaded death tax (at least it will tax less wealthier decedents). The government tried taxing capital gains at death in 1976, apparently it was a disaster from record a keeping point of view and was quickly repealed. The big problem is determine the basis (ie..the starting point for starting the cap gains tax on so-called profits). The rule is that if you can't determine the basis, you are supposed to assume a zero basis (ie...apply the tax to 100% of the value of the asset).

#2 - Impact on charitable bequests: Most charities receive their bequests these days from non-estate tax paying estates (ie..estates under the $3.5 million exemption). Sounds like the repeal of the estate tax won't affect charitable bequests. The only problem I see is that when you break down the estate tax filing numbers reported by the IRS, you find a very high percentage of annual bequest dollars coming from the larger, higher estate taxed estates. My theory: the $5 million+ estates do use attorneys in efforts to avoid estate tax; a lot of lawyers might advise their clients to not bother with their charitable bequests without the incentive to avoid estate taxes (at least for 2010). It will be interesting to see if there is an impact or not on the overall numbers for U.S. bequests.

#3 - At the rate Congress moves on this issue, January 1, 2011 will be here quicker than you think. Probably without an adjustment to the estate tax laws, and the law will revert back to 2001 law: $1 million exemption and highest bracket of 55%. In other words, with inaction, Congress will bring us back to the good old days where my dad might start worrying about estate taxes again. Not so bad for charities if you ask me - might fuel another growth period in planned giving.

I guess we are headed for bedlam in estate tax issues for a year or more.

To think I was able to write this while my 4 kids are all over me is a mystery! Please forgive the typos and enjoy the holiday break.

Jonathan