Estate Tax Confusion Continues


The families of wealthy people who died early in 2010 are starting to confront a confused set of deadlines in this rare year of no estate tax. The estate-tax lapse, which some tax advisors predicted would never happen, is here. The Bush tax cuts of 2001 steadily pared the tax rates and increased the dollar amount at which an estate qualifies to be taxed, and Congress didn’t step in to prevent the one-year repeal for 2010. Next year, the top rate on estates over $1 million will be 55 percent unless Congress makes a change.

Federal tax returns are normally due on Form 706 (Estate Tax Return) nine months after death. But none are due in 2010. In many cases heirs still have to think about state estate taxes. Twenty-one states have an estate tax, but Wisconsin does not.

Nine months after death is also the time for a tax maneuver known as a disclaimer, which has special implications for heirs this year. Disclaimers are used to move assets from one generation to another, or to right some inequity in a will, or further the wishes of the deceased. A spouse may disclaim assets she would otherwise inherit, and let them pass instead to children to take advantage of the lack of an estate tax. Children may also disclaim to pass assets to grandchildren and avoid another potential tax in their own estates.

Some attorneys are advising families of those who died this year to defer disclaimer decisions until the deadline is about to expire. Although it’s unlikely, Congress could still enact a retroactive estate tax, making a disclaimer disadvantageous.

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