Updates on the Federal Estate Tax Law

Recently, there was a report that President Barack Obama and Democratic legislators planned to freeze the estate tax at the current level of $3.5 million exemption per estate, which would prevent the short-lived one year repeal of federal estate taxes in 2010, with the tax returning in the list below year with only a $1.0 million exemption, in addition to a tax rate of as much as 55%.

The U.S. Chamber of Commerce just recently urged President Obama to reverse the tax for good. The Chamber obviously senses that the tax threatens a small company whose proprietor passes away, leaving a variety of debts behind, consisting of the Federal Estate Tax concern, that might require the proprietor’s family to liquidate the family business.
Towards completion of January, Rep. Earl Pomeroy introduced HR 436, which would cap the federal estate tax exemption at $3.5 million and set the tax rate for estates that surpass that amount at 45% (50% for estates in between $10 million and $23.5 million). This part of the bill is amenable to the majority of people, assuming that Congress will not completely repeal the Federal Estate Tax, as the U.S. Chamber urges.

The problem with the expense is that the law would be altered to not enable an appraiser to take any discounts for a minority interest or lack of marketability in an entity that is not actively traded. For example, if you own a 10% interest in a collaboration, your estate would report that you owned that 10% and value it at 1/10th of the overall reasonable market worth of the underlying assets, despite the fact that you do not have any control of the partnership and do not have the ability to sell your interest. If you did have the ability to sell your interest, the prospective buyer would most likely provide you less than 1/10th of the reasonable market price of the underlying possessions, considering that you do not have control and there is a restricted market.
This indicates that your estate will show the full 1/10th of the complete fair market price of the underlying properties, although if such asset were offered, your estate would be paid less for it.

While the use of discounts has actually been a topic of abuse in specific cases, it is obvious that discounts need to be permitted to mirror financial truth in following what a ready buyer would pay a prepared seller where there is a limited market for the interest and no control. Ideally, this portion of the costs will be changed before it becomes the law of the land.