Printer-friendly versionPrinter-friendly version Share this

Good Money: Your guide to financial planning & socially responsible investing


By Judith L. Seid, CFP ®
President, Blue Summit Financial Group


Estate Tax Reform


President George W. Bush's 10-year, $1.35 trillion across-the-board tax cut, passed in 2001, included a slow-but-steady reduction of the amount of wealth that is subject to "the death tax." Under the law, the value of an inheritance exempt from estate taxation increased from $1 million in 2001 to $3.5 million in 2009. In addition, the tax rate on inheritances larger than that decreased from 55% to 45%. And currently with a $3.5m exemption amount, this allows a couple who have done proper estate planning to leave a $7m estate completely free of federal estate taxes to their heirs.

But this tax is scheduled to revert to the 2001 pre-Bush levels (55% rate on estates over $1 million); unless Congress takes action this year and passes new legislation.


The reversion to 2001 levels was actually a compromise accepted by tax-writers to limit the long-term cost to the government of the tax cuts for budget scorekeeping purposes. But many policy makers assumed at the time that Congress in 2010 would instead vote to lock the full tax cuts in place permanently.

Many agree that the estate tax is both an important incentive for giving to charity and a critical source of revenue for the federal government. The federal estate tax provides strong incentives for Americans of substantial wealth to donate from their estates to charitable organizations to support services and programs that help sustain healthy communities and the well-being of Americans of all ages. It encourages donors to give back, both during their lifetimes and through their estates with tax dollars or charitable contributions.

Impact on Charitable Giving:

The Congressional Budget Office has found that the estate tax leads affluent individuals to donate far more than they otherwise would, because such donations sharply reduce estate tax liabilities. The CBO found that about one-sixth of the estates filing estate tax returns in 2000 left a charitable bequest which together totaled $16 billion. Charitable bequests were heavily concentrated in the largest estates with over 70 percent of the total bequests coming from estates valued at more than $3.5 million. (CBO, The Estate Tax and Charitable Giving, July 2004)

Permanent repeal of the estate tax would cost almost $1.3 trillion over the first ten years in which its cost would be fully felt, 2012-2021, according to the Center for Budget and Policy Priorities. This includes $1 trillion in lost revenue and $277 billion in increased interest payments on the national debt. According to the Urban Institute-Brookings Tax Policy Center, a proposal to raise the individual exemption to $5 million and lower the tax rate would reduce estate tax revenue by almost four-fifths as much as full repeal of the tax.

Historical Federal Estate Tax Exemptions and Rates:

Year                         Estate Tax Exemption                Top Estate Tax Rate

1997                       $  600,000                                    55%
1998                       $  625,000                                    55%
1999                       $  650,000                                    55%
2000                       $  675,000                                    55%
2001                       $  675,000                                    55%
2002                       $1,000,000                                   50%
2003                       $1,000,000                                   49%
2004                       $1,500,000                                   48%
2005                       $1,500,000                                   47%
2006                       $2,000,000                                   46%
2007                       $2,000,000                                   45%
2008                       $2,000,000                                   45%
2009                       $3,500,000                                   45%


Estate Tax Reform - Proposed Legislation


With the estate tax expected to sunset for one-year in 2010 before returning in 2011 at pre-tax cut levels, several members of Congress have introduced pieces of legislation to address various aspects of the tax, including its scope, rate, exemption level, and permanence.

• S. 722 – Introduced by Sen. Max Baucus (D-MT) – Would extend 2009 estate tax rates permanently, index the exemption for inflation, and unify the estate and gift taxes.

• HR 436 – Introduced by Rep. Earl Pomeroy (D-ND) – Would extend the 2009 estate tax rates permanently (45% rate; $3.5 million individual exemption), but does not index the exemption for inflation.

• HR 498 – Introduced by Rep. Harry E. Mitchell (D-AZ) – Would gradually raise the exemption to $5 million, index it for inflation, and impose a top rate of 30% (Six Republicans have co-sponsored this bill).

• HR 1986 – Introduced by Rep. Travis Childers (D-MS) – Would set a $4 million individual exemption and impose a 40% top rate.

• HR 2023 – Introduced by Rep. Jim McDermott (D-WA) – Would set a $2 million per-person exemption, indexed for inflation, and impose progressive tax rates based on the estate value with a 55% top rate.

• HR 3463 – Introduced by Rep. Kevin Brady (R-TX) and the Republican leadership – Would make permanent the 2010 repeal of the estate tax.

• HR 3524 – Introduced by Rep. Mike Thompson (D-CA) – Seeks to prevent the value of inherited farmland from being subject to the estate tax if the decedent’s family continues to own and farm it.
Mr. Obama has proposed permanently locking in the estate tax at the current 45% rate with a $3.5 million exclusion.

According to Jonathan Weisman (Wall St. Journal 9/19/09), it is highly unlikely that we will see anything pass that will permanently repeal the estate tax and that Congress is so busy working on health care reform, it is likely that we could see a one year extension of the current exemption and rate and “leave the fight to next year”

Judith L. Seid, President and founder of Blue Summit Financial Group, Inc, is a Certified Financial Planner who has actively used Socially Responsible Investing (SRI) for her clients since 1992. She firmly believes that “We can influence corporations to change their policies by avoiding investments in irresponsible companies and by seeking investments in companies with positive practices and products.” Socially responsible investing (SRI) exists for investors looking to use the power of financial investment to create sustainable social change. For more information on Sustainable Investing, contact Judith at Blue Summit Financial Group in La Mesa, (619) 698-4330; Securities offered through Pacific West Securities, Inc. (Pacific West) Member FINRA/SIPC. Advisory services provided through Pacific West Financial Consultants, Inc., a Registered Investment Advisor. Blue Summit Financial Group, Inc. and Pacific West are not affiliated.


Error message

Support community news in the public interest! As nonprofit news, we rely on donations from the public to fund our reporting -- not special interests. Please donate to sustain East County Magazine's local reporting and/or wildfire alerts at to help us keep people safe and informed across our region.