Summary & Text of New Tax Bill HR 4853 (Senate Amendment 4753)

So would that eliminate much of the point of using a credit shelter trust?

Also, permanent or temporary? In the Senate summary at least, it is NOT tagged as "temporary".

Permanent or temporary?

Also, the summary says that the estate tax exemption will be indexed starting in 2012. Indexed from what? The $5mil which sunsets after 2012? The $1mil it reverts to? Or is the indexation sunsetted out itself?

-- Rich Carreiro snipped-for-privacy@rlcarr.com

For all intents and purposes, there is no longer any permanent tax code in the US. We now live and operate under a temporary set of tax laws.

The estate tax changes are good for two years (three years if you count the fact that it is retroactive to 1/1/10) just like the income tax changes in the bill. The indexing starts in tax year 2012 and like everything else goes poof at midnight on 12/31/12.

And... if by credit shelter trust you mean the AB trust, then yes the new law eliminates the need unless of course one is planning to die after 2012.............

If you look at the Senate Summary, there are seven titles. Each title starts with the word "Temporary."

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The summary refers to the "unused exemption" being transferred, so if that $1.5M goes to the surviving spouse, a $10M exemption remains.

I wonder what happens if the surviving spouse remarries.

Seth

There are still reasons for using the credit shelter trust, though the benefits of doing so are less for the next couple of years.

For one thing, couples with more than $10,000,000 might elect to have some assets taxed in the first estate, and in some cases that could result in a lower over-all tax in both estates.

Also, with a credit shelter trust you can put appreciating property in the marital trust, and avoid estate tax on the increase in value of those properties. That does not seem to be an option under the new law if a trust is not used.

??(2) APPLICABLE EXCLUSION AMOUNT.?For purposes of this subsection, the applicable exclusion amount is the sum of? ??(A) the basic exclusion amount, and ??(B) in the case of a surviving spouse, the deceased spousal unused exclusion amount.

??(4) DECEASED SPOUSAL UNUSED EXCLUSION AMOUNT.?For purposes of this subsection, with respect to a surviving spouse of a deceased spouse dying after December 31, 2010, the term ?deceased spousal unused exclusion amount? means the lesser of?

??(A) the basic exclusion amount, or ??(B) the excess of? ??(i) the basic exclusion amount of the last such deceased spouse of such surviving spouse, over ??(ii) the amount with respect to which the tentative tax is determined under section 2001(b)(1) on the estate of such deceased spouse.

If the dead spouse had an estate of $1.5M and the estate used $1.5M of the decedent's $5M basic exclusion to avoid paying estate tax, then the remaining $3.5M can be transferred to the surviving spouse. The surviving spouse would now have an $8.5M exclusion.

And.... the transfer of the exclusion to the surviving spouse is not automatic. It requires that the executor prepare a timely filed estate tax return containing the election.

I can't find anything in the Bill that amends Subtitle B that says a surviving spouse who remarries loses the revised exclusion. This makes sense as the wording above says the deceased spousal unused exclusion is the lesser of the basic exclusion or the unused basic exclusion. In other words, in my scenario if the survivor remarries and then dies with a $2.0M estate, the unused exclusion that can be transferred to the new spouse is not $6.5m. It is only $5M the lesser amount.

Ex-post-facto not valid. Retroactive laws are unconstitutional. However, anyone dying in the last two weeks of 2010 could apply either.

I read predictions a year ago that for 2010 there would be a choice of two estate tax laws, pick the one you like. Who would challenge it in court (the retroactivity of the option to use either law)? What a waste of time that would be...

Or put another way, doesn't Congress pass retroactive tax laws almost every year these days (as Alan noted), the so-called "extenders"? As long as they are in the taxpayers' favor, how could it be thrown out in court?

As opposed to here in California, where a conformity bill was passed and undoubtedly some taxpayers filed returns in good faith based on that (specifically, COD income exclusions). Now, in November, a ballot initiative passes that renders the conformity bill invalid retroactive to the first of the year. Now *that* should be challenged!

-Mark Bole

See Supreme Court decision in US vs Carlton upholding retroactive changes to estate tax law:

Read about it here:

CCH has published its summary of the bill at:

DLA Piper has published a summary that also includes what's not in the bill:

SCOTUS has held the ex post facto prohibition to only apply to criminal statutes, IIRC.

And wasn't some estate tax change made retroactively during the Clinton administration?

-- Rich Carreiro snipped-for-privacy@rlcarr.com

If the dead spouse had an estate of $1.5M all of which went to the surviving spouse, then it was covered by the spousal exclusion, and the surviving spouse would have the full $10M exclusion, right?

Suppose it's the other spouse who dies, with no estate. Does the survivor now have a $13.5M exclusion, increasing by $5M every time she remarries and her spouse dies estateless?

Seth

Wrong. The full exclusion is $5 million, not 10. So the surviving spouse gets her $5 million plus the 3.5 million that was left over from the deceased spouse.

You're still $5 million too high. But since what you propose is possible with bypass trusts, I suppose it would work in this case, too.

Exactly right.

There have been a lot of retroactive laws over the years.

No. The two are separate. The basic exclusion gets reduced regardless of whom the estate is left to.

Already answered by the "lesser of" clause. The unused exclusion that gets transferred can never be higher than the $5M.

I have read the case, and am not convinced that this means imposing an entire estate tax retroactively, when one did not exist before, is constitutional. Minor changes, I suppose so. But I think it was pretty smart to give people who died in 2010 the option of no estate tax or this estate tax - if they choose this estate tax, it is their choice.

You missed the point. My reply has nothing to do with whether the current estate tax changes are constitutional or whether implementing a completely new tax retroactively would be constitutional. My reply was to D. Stussy's comment that retroactive tax laws are unconstitutional. I was merely pointing out to D. Stussy that the USSC has found on more than one occasion (see the cases referenced in the Carlton decision) that retroactive tax laws are not prima facie unconstitutional.

And it never is. Consider:

Wealthy woman, poor husband. He dies; she now has a $10M exclusion.

She marries another poor husband. He dies; she now has a $15M exclusion.

She marries yet another poor husband. He dies; she now has a $20M exclusion.

Note that the unused exclusion that gets transferred is never higher than $5M, but the $5M gets transferred from _each_ deceased husband.

Seth

You are completely misinterpreting the text of the tax section.