Since Congress has had so much difficulty around a permanent estate tax solution to begin with, there is no reason to think a retroactive solution would be any less controversial.

Congress may make noise all year that it will pass a retroactive fix, just to discourage those who would "push Momma from the train."

Economic Concerns Briefing “The Future of the Estate Tax” Repeal of the Estate Tax Creates Planning Dilemmas Bradley G. Barth, Esq. 333 City Blvd West, Suite 2050 Orange, CA 92868 Email: brad@hmbfinlaw.com Website: www.hmbfinlaw.com (714) 704-4828

EGTRRA of 2001 Federal legislation enacted in 2001 repealed the estate taxes for 2010. The 2001 legislation, however, also included a "sunset" provision eliminating all of these transfer tax changes at the end of 2010.

*$1,000,000 exemption equivalent for gifts still applies; rate equals highest income tax rate (35%). Exemption Equivalent and Tax Credit

Current Status of Estate Tax In December 2009 the House of Representatives passed H.R. 4154, attempting to permanently extend the 2009 estate tax rates and exemption amounts. The more closely divided Senate did not act. The one-year repeal originally enacted by Congress in 2001 began on January 1st and the estate tax will hibernate in 2010.

The Rumors of My Demise is Greatly Exaggerated The first estate tax returns for 2010 decedents will be due next October (April 2011 if an estate takes a six-month extension). Congress could restore these taxes retroactively by acting at any time before then. Taxpayers are likely to know the result before any 2010 estate tax return is filed.

Retroactive Re-Enactment Retroactive taxation is not a new concept and when challenged, tax payers lose and the tax had been imposed. There is a fairly developed body of case law that addresses the constitutionality of retroactive taxation. “So long as the retroactive law is rationally related to a legitimate legislative purpose (i.e., raising revenue), it will be upheld as constitutional.”

The Dirty Little Secret In an election year, hardly a Representative or Senator up for re-election wants to go on record as having voted to re-institute a tax. Another possibility exists that Congress will do nothing (except talk about retro re-enactment) in 2010 and simply allow the estate tax to automatically drop to $1 million in 2011, with a top estate tax rate to 55%!! Reality Check: The 1 year estate tax repeal: 6,000 estates will avoid estate tax, but 70,000 will now be subject to new capital gains tax.

Conclusion The elimination of the estate taxes and the introduction of carryover basis for those dying in 2010 is an extraordinary event. Taxpayers who act in reliance on the current status of the law do as at their own risk. The tax uncertainty should not distract you from more fundamental (non-tax) estate planning needs: Provided for Surviving Spouse & Children Asset Protecting a Beneficiary’s Inheritance Business Succession Planning Estate Equalization for Non-Business Heirs Debt Repayment (i.e., estate liquidity) Provided for Special Needs Children Charitable Considerations

Bradley G. Barth, Esq. is a Partner of the Orange County, California office of Barth Berus & Calderon, LLP, and Supervising Attorney of the firm’s Transactional and Estate Planning Department encompassing business formations and transactional matters, estate planning, asset protection, probate, trust administration, tax and real estate law. Mr. Barth is a Certified Wealth Preservation Planner™ and a Certified Asset Protection Planner™. He has been an adjunct professor teaching Property, Estates, and Probate at an ABA accredited Paralegal College. He earned a B.A. degree from California State University Fullerton and his J.D. degree, with honors, from Western State University College of Law in Fullerton, California. Mr. Barth is a member of the State Bar of California (Section of Trusts and Estate, and Business Law), American Bar Association (Section of Real Property, Probate and Trust Law), Los Angeles County Bar (Section of Trusts and Estates), the Asset Protection Society, and Wealth Preservation Institute. Mr. Barth views his role as a trusted and long-term advocate of asset protection planning in helping his clients achieve and protect their financial goals and lifetime accomplishments.