Ok, I’m not really holding my breath, but you do realize that with 7 months left to go Congress needs to act or there will be a free estate tax ride in 2010. As the law now stands, the exemption has been rising steadily over the last 9 years from the malnourished $600,000 in 2000 to what many consider a pretty appropriate $3,500,000 in 2009.

So what’s the future of estate taxation and estate tax exemptions? If Congress snoozes there could be a lot of rich folks who seriously consider planned obsolescence next year. No action actually does away with the estate tax completely, as in well, completely in 2010. It’s only for that one year, but if it all came together for a family, that lack of a tax could leave millions or billions in their pockets rather than sharing the wealth with the government.

And for all of those families who have so prudently planned over the years by putting second to die insurance in place to pay taxes, ca-ching, bonus time. Instead of going to pay taxes, all of that life insurance money will be added to their non taxable estate. Kind of lends a new take on that old native American movie line, “it’s a good day to die”.

Then comes 2011 when the estate tax comes back with a vengeance. The tax rate goes from the 2009 45% up to 55% and the exemption goes down from the 2009 $3.5mm to $1mm. So what would that mean if for instance we were talking about a $5mm taxable estate. In 2009 that would leave $1.5mm taxable after the exemption and that would be taxed at 45%, so the government would get $675,000. In 2010 all $5mm stays in the family. In 2011 $4mm would be taxable after the exemption and at 55% the government would get $2.2mm. Hmmmm!

Personally I think the first nine years of the estate tax revision made sense. The exemption was long overdue for a serious increase and the tax rate really was too high. What I can’t figure is what bozo thought it was a good idea to make it temporary and actually have it disappear for a year and reappear at the levels that were grossly unfair to start with? So, what’s rally going to happen?

Of course it’s all speculation until the trigger is pulled, but a compilation of all the wild guesses floating around has Congress amending the current law to continue the exemption and tax rates at the 2009 level on into the future. That seems to be the middle of the road right now.

For planning purposes the best answer is still the tried and true 2nd to die universal life no lapse products. Cost effective. Great guarantee. Some still offer an increased death benefit during the first four years to offset lack of planning if you don’t have a life insurance trust.

Bottom line. We’ll know for sure what the future holds for estate taxes when it happens, but one thing is certain, today’s exemption and rate are far more fair than where we started and there is little to be gained by letting the current law run its’ course.