2010 Estate Tax Alert – Retroactively Imposed is Unconstitutional 
By Shane Flait © 2009

For 10 years the estate tax was set in law to be abolished in 2010. If congress didn’t act to keep it abolished or modify it for 2011 and beyond, then the 2011 estate tax would just revert to that of 2000. Now congress is considering retroactively imposing an estate tax for 2010 later in 2010. This article updates you on the present rates and explains that this retroactive change is unconstitutional.

 

Just so you know, there’s no estate tax and generation skipping (GST) tax in 2010 by law. Since estate, GST, and lifetime gift taxes generally tax value above an exemption amount, we can say that the 2010 estate, GST, and lifetime gift taxes have exemption levels of unlimited, unlimited, and $1 million, respectively. The value of gifts beyond the $1 million exemption level is taxed at up to 35%.

 

Without congressional action, the 2011 estate, GST, and lifetime gift taxes exemption levels will go to $1 million, $1 million (including lifetime gift), and $1 million respectively. The top rates of each of these are 55%. But that’s all liable to change either before 2011 turns the corner of after.

 

Changing 2010 taxes retroactively should be considered unconstitutional

 

Congress in its audacity may change the 2010 estate tax laws late 2010 retroactively to Jan 1, 2010. Some consider this retroactive change constitutional. They cite Supreme Court case law in U.S. vs Carlton (1994) that deals with a complicated estate tax deduction for an ESOP transaction. A retroactive law affecting this situation was upheld by the court to maintain the intent of the original law – and that no improper motive for upholding the retroactive law was found.

 

But, the operation of the 2010 estate tax law reflects no mistaken intent of those who fashioned and passed that law. The clear intent of the law was to do away with estate tax. It left it to legislators to review what should be done for years following 2010. The reversion to the 2000 law was just to leave an estate tax law in place for abolishment or modification.

 

But for 10 years, the legislature has done nothing about estate tax laws beyond 2010. This is a disgrace in itself. That’s because estate taxes can rob a wealthy estate of up to half its value. And it takes several years – and often far more - to put effective estate planning into effect. And now, well into 2010, legislators are considering retroactively changing the 2010 estate tax law.

 

There’s no justification of retroactively changing the 2010 law not only because the original intent of the law is consistent with its operation, but there are reasons that changing it servers the improper motives of congressman.

 

Those motives are associated with contribution money to their election campaigns from special interest groups who seek influence on how the laws should be changed. Laws that require imminent action frantically draw special interests to donate that much more. And the more congress can keep the carrot dangling, the more personal benefits they can squeeze out of the situation – a situation created completely by their own inaction.

 

Any congressman who votes for a retroactive 2010 estate tax law should be voted out to office. The unconstitutionality of retroactive laws is obvious even to them – not to mention the average citizen. Trying to pass such laws will reap their selfish benefits – at the expense of the citizenry – even if it’s later overturned by the Supreme Court.

Shane Flait is a writer and educator. See more at www.EasyRetirementKnowHow.com