1. Extend the $3.5 million exclusion on a permanent basis, and also make the law retroactive to Jan. 1. Although Sen. Baucus has advocated this approach, Rep. Rangel, chair of the House Ways and Means Committee, is now backing off of retroactivity. In any event, a retroactive law is a guarantee of litigation that will leave estate planning up in the air for years.
2. Extend the $3.5 million exclusion, but don't make it retroactive. This is what Rep. Rangel is talking about, and since he's chairman of the House Ways and Means Committee, it could stand a chance. Much less chance of litigation, although a few estates will slip through and never be taxed. But that's the chance the Senate took when it went home on Dec. 24 without voting on the estate tax.
3. Do either 1 or 2 above, but insert your favorite number for an exclusion amount. A popular substitute has been $5 million.
4. Take no action and allow all of 2010 to roll by without any estate tax, and go into 2011 with only a $1 exclusion and a 55 percent maximum tax. This is the default situation, and we'll get there if Congress does not take action. There are pros and cons for each party: The Republicans get a full year of repeal, but 2011 brings a much harsher estate tax. The Democrats have to put up with a full year of repeal, but in 2011 they get a new revenue source that could help balance the budget. And, even better, no one is on record as having voted for it! It's harder to be criticized for a non-vote that increases taxes than an actual vote for increasing taxes.
Whatever happens, one thing seems to be sure: It won't happen soon because the health care bill has to be decided first.
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