Where is the Estate Tax going?

I think I get asked this question more than any other. So, to be fair, I ought to give my opinion, or better said, an educated-guess, early in this blog. A year from now I will come back and revisit this topic and we'll see how close I came. Here goes:

It is my opinion, based upon the most recent events in the US Congress, that the Estate Tax will remain well past 2010. Sure, it may go away completely that year as currently on the books, but from 2011 forward, I believe there will be an estate tax. When it will officially change is any one's guess, and my opinion is certainly my best guess as well.

We will very likely see a 3.5 million unified credit per individual, with married couples being able to protect up to 7 million before an estate tax will apply. Of course the married couples will need certain provisions in their trust to take advantage of this double-the-savings advantage.

The tax rate will likely be the 45%. See example below to see how this works.

The step-up in basis will likely continue since the talk about removing the step-up in basis was more in line with what changes would be made to the income tax code if the estate tax was removed.

Let me give you an example. Robert E. Lee, who is widower, has an estate valued at $4,500,000. Royalties from all his Civil War books have paid well. He dies in the year 2011 and the estate tax code provisions that I suggested above is put into place. The first 3.5 million he leaves to his children passes without an estate tax. Of the remaining $1,000,000, Mr. Lee's estate will need to pay $450,000 in estate taxes to the IRS. (It is very unlikely the State of Arizona will see any of this unless the State of Arizona passes an estate or inheritance tax, something that I do not believe is even being discussed at this time). Therefore, the first 3.5 million will go to the kids tax-free and the remaining $550,000.00 after the payment of the estate tax will go to his children for a total of $4,050,000.00.