A legislative battle is brewing regarding the future of the federal estate tax, or "death tax," as it commonly is referred to by its opponents. This battle's outcome could have significant implications for many small- and medium-sized businesses.
In 2001, Congress passed legislation to phase out the estate tax during a 10-year period. The tax has declined from its 2001 level of a 55 percent rate with a $675,000 exemption to a 45 percent rate with a $3.5 million exemption. On Jan. 1, 2010, the estate tax is scheduled to decline to zero—but only for one year. The tax is scheduled to revert to its 2001 level beginning Jan. 1, 2011.
It doesn't require much imagination to foresee the extreme difficulties the uncertainty regarding the estate tax may create for estate owners, their families and their businesses. If Congress does nothing to address this issue, the estates of owners who die during 2010 will have no estate tax liability whereas estates of owners who die during or after 2011 will have substantial tax liability that could ultimately force the sale of family-owned businesses.