Conrad Teitell Urges Senate Leaders to "Not Pass Go" Until They Address Estate Tax

Conrad Teitell Urges Senate Leaders to "Not Pass Go" Until They Address Estate Tax

News story posted in Transfer Taxes on 13 January 2010| comments
audience: National Publication | last updated: 18 May 2011
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Summary

In response to year-end Congressional inaction and using the game of Monopoly as an analogy, attorney Conrad Teitell has written Senate Finance Committee Chairman Max Baucus and Ranking Member Charles Grassley to convey his opinion regarding the unfairness of a retroactive reinstatement of the estate tax, the possible consequences of such action, his recommendation that any new estate tax be applied prospectively and that new carryover basis rules be repealed retroactively, and for Congress to announce its intent and effective date for estate tax reform.

Full Text:

January 12, 2010

Dear Chairman Baucus and Ranking Member Grassley:

This is a follow-up on my December 23, 2009 letter (below) urging that you announce by December 31 a "permanent" or short-term compromise on the estate tax and give a date certain in early January 2010 when the compromise will be voted on.

January 1, 2010 has come and gone and not a word from Congress on this important legislation. Congressional silence and inaction now — after much talk in December 2009 about retroactive legislation — is unfair. Whether retroactive legislation would also be unconstitutional is an issue that should be avoided.

When I testified before the Senate Finance Committee hearing on estate tax revision on November 14, 2007, I concluded my opening statement:

Thanksgiving is just around the corner. Every year my family has a marathon Monopoly game — over the entire holiday weekend.

This year, to make the game more realistic for my grandchildren, I’ve indexed the game for inflation.

If you buy Park Place, it will cost you $5 million.

The card that formerly said "Pay Tax Collector $200" will now say: "Pay $20,000 if you land at 7:00 or 8:00 o’clock; pay $15,000 if you land at 9:00 o’clock; and pay nothing at all if you land at 10:00 o’clock. But if you land at 11:00 o’clock or later, pay $40,000."

That’s analogous to the changing estate tax exemption over the next couple of years, complete repeal of the tax in 2010, but a return of a $1 million exemption in 2011 and beyond.

My version of the Monopoly rules will surely make our Monopoly game more interesting.

But our nation’s estate tax rules shouldn’t be a roll of the dice!

When I played Monopoly with my grandchildren over the recent Christmas holiday, I had to remind one of them about the importance of following the rules — that we couldn’t change rules in the middle of the game.

Estate planning is serious business and not a game. Yet a retroactive change in the 2010 estate rules would literally make estate planning a roll of the dice.

Two examples:

Your constituent makes gifts now above his or her $1 million exemption. Will the current 35% tax rate apply or will it be increased retroactively to 45% or some other rate?

Your constituent makes a gift now to a grandchild. The current law has no generation-skipping transfer tax. Will that tax be imposed retroactively?

The 2010 carryover basis rule presents additional problems.

Suppose your constituent dies today with non-liquid assets. With the statements by Congressional leaders about the retroactive return of the estate tax, a prudent executor will likely sell estate assets to assure the availability of funds to pay the estate tax. State diversification of investment laws also come into play. Will there or won’t there be a capital gains tax to pay?

Suggestions:

  1. Announce now that the carryover basis rules will be repealed retroactively. Although members of Congress have differing opinions on whether there should be an estate tax — and if there is to be an estate tax, the appropriate rate and exemption — repeal of carryover basis is an issue about which almost all would agree. Retroactive repeal of the carryover basis rule is appropriate because taxpayers would not be adversely affected.

  2. Announce now that any changes in the gift, estate and generation-skipping transfer tax laws will be prospective.

  3. If you believe that following suggestion number 2 would provide a windfall for some taxpayers, then tell the citizens now what you plan to do, when you will do it and the effective date.

For what it’s worth, there are unhappy campers — constituents — out there.

This letter represents my personal views and does not represent the official view of my law firm or any organizations to which I belong. No client has engaged me to make these comments to you.

Respectfully,

Conrad Teitell

Chairman, Charitable Planning Group
Cummings & Lockwood LLC
Six Landmark Square
Stamford, CT 06901
Phone: 203-351-4164
Right Fax: 203-708-3840
cteitell@cl-law.com
Admitted in NY and DC

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