The federal estate tax can have a life-changing impact on future generations of your family, and ever since it first took effect in 1916 there have been many who would like to see it repealed. They reason that it is not a fair form of taxation because it is imposed on assets that have been accumulated after taxes have already been paid. To these individuals it doesn’t seem as though passing away in and of itself should be a taxable event, and by any logical barometer this is definitely a valid point.
People who favor a repeal of the estate tax got a temporary taste of it in 2010. Part of the Bush era tax cuts included an estate tax repeal for 2010, and throughout most of the year this repeal was in place. Upon the expiration of the Bush tax cuts at the end of 2010, the estate tax was scheduled to return with a $1 million exclusion and a 55% maximum rate at the beginning of this year.
This didn’t take place because in the middle of December a new tax relief measure was passed that is now called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This legislation raised the estate tax exclusion to $5 million and reduced the rate to 35%. This is good for those who favor tax relief, but the bad news is that the tax was reinstated retroactive to the beginning of 2010.
However, reinstating the tax retroactively to in essence repeal the repeal could be unconstitutional, and lawmakers recognized this. So they are allowing the executors or personal representatives of the estates of individuals who died in 2010 to opt out of the estate tax. They can do this by filing IRS Form 8939.
To make this matter all the more bizarre, this form was originally due by November 15th, but this deadline has been moved to January 17th of 2012. Why? Because the IRS hasn’t yet completed the final draft of the form.
When you hear about this saga, you can see that estate planning attorneys are not overstating the need when they tell you that you would do well to retain legal counsel when you are making legacy plans.