Retroactive tax

Reader comment on: More on Robertson, Rubin, and the Estate Tax

Submitted by Deborah L. Jacobs (United States), Sep 3, 2010 15:24

I agree with Robert Rubin and Julian Robertson ("Bring Back the Estate Tax Now," Wall Street Journal, Sept. 1, 2010) that the estate tax should be restored retroactively at the levels that were in effect in 2009. At those levels the tax affects very few people. And past court cases suggest that restoring it retroactively is perfectly legal.

But Congress also needs to address an issue that Rubin and Robertson don't cover in their op-ed piece: Some people with a lot at stake have argued that a retroactive tax is unconstitutional and have threatened lawsuits.

With the prospect of litigation looming, any legislation that takes effect in 2010 should offer a choice for heirs of people who die this year: Pay estate tax, or use the special income tax rules that are in effect while there is no estate tax. Under these rules, heirs must use the original price paid for an asset when computing the income taxes they will owe if they sell it. Previously, they could use the value upon the owner's death. Each estate is permitted to exempt $1.3 million of gains from this carry-over basis rule. An additional $3 million exemption applies to assets inherited from a spouse.

By offering heirs the chance to opt out of the estate tax system, and to elect modified carryover basis instead, the lawmakers would extinguish the possibility of lawsuits and smooth the way for the return of the estate tax. They would also provide welcome certainty to executors — the individuals or institutions who administer estates. Right now, the process of selling and distributing assets following 2010 deaths has been delayed in many cases because of uncertainty about whether an income tax or an estate tax will apply.

–Deborah L. Jacobs, author of "Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide" (www.estateplanningsmarts.com)

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