You know that the federal estate tax law passed in 2001 provided that in 2010, there is no federal estate tax, but in 2011 it will be reimposed at a 55 % tax rate on all estate assets exceeding 1 million dollars.
Congress has been debating what to do about this, and the Republicans and conservative Democrats in the Senate thought they had a deal to reset the federal estate tax credit at 5 million dollars with a tax rate of 35% above the exempt amount.
But the deal broke down, with more liberal Democrats demanding the credit be reset at 1 million dollars with a 55% tax above that amount.
I have taken several calls from clients who have appreciating assets in trust, asking what they should do. Do you terminate the trust now, forego the step up in tax basis so that your appreciating assets will be taxed at a capital gains rate? Or do you keep the assets in trust to take advantage of the step up in basis, and hopeing for the higher unified estate tax credit.
And what happens if Congress raises capital gains rates to 20%, or even gets rid of the capital gains rates all together and folds gains into earned income, as some Democrats advocate?
There's simply too many variables for anyone to know the best answer. And there's certainly no boilerplate answer. But if you have a trust, or a net worth over 1 million dollars, spending a few bucks on professional advice right about now would be a very good investment.
Rob Harris is the founder and President of Harris Law Firm, P.C. a firm focusing on the needs of families and their small businesses.