Legislation approved under President Bush is about to expire. Does it mean we’ll have to pay more on estate taxes?

By David J. Zumpano

In 2001, President Bush signed a major tax legislation that was implemented over a 10-year period ending January 2011. Under the law, the estate tax exemption limit was increased (from $1 million to $3.5 million) for the period between 2001 and 2009. The law, however, also provides that on Jan. 1, 2011 the estate tax law reverts back to what it was in 2001.

We are rapidly coming upon Jan. 1, 2011 — will it revert to the 2001 levels?

One thing we know for certain is what the current law states.

On Jan. 1, 2011, the estate tax reverts back to the levels it was in 2001, providing for the individual exemption amount to fall to $1 million.

Estates in excess of that amount will be subject to a confiscatory 55 percent estate tax.

Interestingly, neither Democrats nor Republicans want the law to revert — but what will they do about it?

There have been many bills in Congress over the last 10 years to make permanent the law as it provided in 2009 and not revert back to the 2001 level. Most of the bills provide for an estate tax exemption somewhere between $3.5 million and $5 million at a maximum 35 to 45 percent tax rate after 2010.

The current political scene, however, assures no action will be taken on this matter until after the 2010 elections in November.

For those of us who live in New York, we also have to be aware of the New York estate tax, which applies to individuals with estates of $1 million. Oddly, while it provides for the $1 million exemption, if an individual dies with more than $1 million, they are subject to an estate tax from the first dollar, rather than just amount over $1 million.

Careful planning is essential to ensure you do not subject yourself to a New York estate tax unnecessarily.

It is also important to know the estate tax exemption is permitted to each individual. Married couples can double the exemption. Unfortunately, most married couples lose the exemption because of improper beneficiary-designations on the titling of their assets, to their spouse or owing them jointly. These types of accounts will act to eliminate the double exemption.

So, what will happen with the estate tax? Not certain, but this I know. It will be in a state of flux for the rest of the year and perhaps into 2011 or beyond.

It’s essential that your planning considers these laws now, and as they change, to ensure your family is not adversely impacted.

David J. Zumpano is an attorney and a certified public accountant (CPA). He operates Estate Planning Law Center. He can be reached at 793-3622.