Question:   

My wife and I are trying to do estate planning, but we don’t know how Congress is going to change the law.  My wife and I jointly own a small farm, some investments and a life insurance policy – the grand total value equals $1,400,000.  Do you have any idea of what they are going to do?

Answer: 

Unfortunately, the estate tax picture, as well as the general tax picture in Congress, is about as clear as mud right now. As you may know, the federal estate tax expired Dec. 31, 2009, after Congress was unable to reach an agreement on either a permanent or short-term extension. There is no federal tax on estates if you die this year, but then the death tax comes back with a vengeance on Jan. 1, 2011, with only a $1 million exemption and a 55-percent tax on amounts over that level–unless Congress takes action to change the law. As a result, many individuals, even smaller farms and businesses, could end up paying a bucketful of taxes if the person survives until 2010 and beyond.

Several lawmakers have introduced bills to raise the exemption and change the tax rates. But changing the law won’t be easy. The Statutory Pay-As-You-Go Act of 2010, enacted in February 2010, requires that any changes to the estate tax beyond a two-year extension of 2009 law must be fully offset by cuts in programs or revenue raisers.

I recommend that you act now to update your will and estate plan AS IF the estate tax comes back with vengeance on January 1.  In your case, updating your estate plan could save your heirs over $120,000 of Federal Estate Taxes. 

Feel free to contact me if you or someone you know has this type of situation.  Financial Planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.