CLIENT ADVISORY - ONE-YEAR ESTATE TAX REPEAL APPEARS LIKELY

It currently appears that Congress will not enact compromise legislation on the estate tax before it recesses for 2009. In that event, the federal estate tax would be temporarily repealed for one year, effective January 1, 2010. Absent legislative change in 2010, the estate tax would then become effective again on January 1, 2011, with a lower exemption of $1 million per person (down from the current $3.5 million exemption per person), and with marginal rates rising to 55% from the current 45%. One of the effects of a temporary repeal is that inherited property, which otherwise would have received a fresh tax cost basis from the decedent's estate, would instead keep the decedent's tax cost, and would be subject to capital gains tax at sale, with a $3 million exemption for spouses and a $1.3 million exemption for others. Congress could be expected to pass a new estate tax law in 2010 and have such law made effective as of January 1, 2010. We are closely monitoring the current situation--please feel free to call any of the following partners in our Trusts and Estates Department for further information.

G. William Haas, Chair
212-735-8645

Jeffrey A. Lowin, Partner
212-735-8750

Karin Lundell, Partner
212-735-8838