1.      Senate Proposal.  On March 21, 2007, the Senate strongly indicated that they would consider estate tax reform in the fiscal 2008 budget resolution (S.Con.Res.21).  Senator Max Barcus, chairman of the Senate Finance Committee, included estate tax reform in his proposed budget, stating “we want to give American families certainty.  We want to support ’s small farmers and ranchers and in the amendment, we have allowed room for estate tax reform that will do that.”  The amendment to the budget resolution would extend the estate tax exemption of $3.5 million, which is effective in 2009, through 2012. Thereafter, the exemption would increase to $5 million (and would be indexed for inflation).  The top estate tax rate would be reduced to 35%.  Concurrent resolutions, such as the 2008 budget resolution, do not have the force of legislation, but they are viewed as reflecting the sentiment of Congress. 

2.        House Bill HR 3170. Representative Harry E. Mitchell, D-Ariz. introduced a bill on July 25, 2007, which would permanently reform the estate tax and tie the estate tax rates to the capital gain rates.  If enacted as introduced, HR 3170 would make the following estate and gift tax changes, which would become effective January 1, 2010, except as noted: 

§         Increasing the applicable estate tax exemption from $3.5 million in 2009 to $5 million in 2015 as follows: 

              Year                                       Exemption Amount 

              2010                                        $3.75 million

              2011                                        $4 million

              2012                                        $4.25 million 

              2013                                        $4.5 million

              2014                                        $4.75 million 

              2015                                        $5 million 

§         Indexing the exemption amount after 2015 for inflation. 

§         Reunify the estate and gift tax exemptions. 

§         Set the estate tax rate to the top capital gain rates on estates of less than $25 million   and twice that rate on estates above $25 million. 

§         Index the rate bracket for inflation after 2014. 

§         Reduce the generation skipping tax rate to the same as the top estate tax rate. 

§         Permit the surviving spouse to use the unused exemption amount of the deceases spouse. The executor of the estate of the deceased spouse would be permitted to elect to give any unused exemption amount to the surviving spouse. 

§         Retaining the current rules permitting a step up in basis for inherited assets.    

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       Although neither of these proposals have been enacted into law, there is clear support in Congress for meaningful estate tax reform.  We will advise you of further developments on this topic.  In the meantime, if your estate plan has not been reviewed recently, you may want to contact our estate planning department to discuss your situation.