The June 26, 2001 edition of The Estate and Gift Tax Bulletin by Tax Analysts featured an article by John Buckley, a member of the House Ways and Means Committee Democratic staff. The article is titled "Estate and Gift Taxes: What Will Congress Do Next?" and discusses the gift and estate tax provisions of the recently passed tax act, how those provisions might actually affect gift and estate taxes over the next ten years, and what chance the estate tax repeal has of surviving the acts of future Congresses. To view the article, visit www.tax.org/taxa/tadiscus.nsf and select the Estate, Gift, Trust Archives, then select the issue for June 26, 2001.

Following is a brief summary of some of Mr. Buckley's points and comments.

Most people who have any interest in estate taxes understand that all the tax cuts recently passed, including the estate tax repeal, are set to terminate (or sunset) at the end of 2010. At that point, without more legislation, the estate and gift tax rules will revert to those in effect before the act was passed. The estate tax repeal will have lasted for only one year.

Some experts have stated that Congress was forced to include the sunset provision by some obscure rule. Mr. Buckley gives "little credence to that argument." The sunset provision "permitted Congress to reduce the cost of the legislation by enacting legislation that remains in effect for only nine years (while, under budgetary rules, providing an estimate of the legislation's cost over 10 years)." In effect, "Congress has done little more than promise to return to the issue of estate and gift taxes at some time in the future."

Many states collect "pickup" taxes based on an estate's federal estate tax, and the estate may then claim a credit for state death taxes paid. These state revenues will be greatly reduced as the estate tax is phased out "if the state legislatures choose by their inaction to permit that result." But with many states already facing fiscal stress, one cannot assume that they will not enact legislation to retain their current pickup taxes or enact independent estate taxes of their own. So, Congress has effectively delegated the ultimate decision on estate taxes to the state legislatures.

During the one year in which the estate tax is repealed, the current step-up in basis will be replaced by carryover basis rules. Under these rules, "it is possible that some estates, those with debt levels in excess of tax basis, actually could have net tax increases . . . when compared to current law."  The carryover basis rules will further complicate the current tax system and will create large record keeping burdens.

According to Mr. Buckley, the estate tax repeal as currently written will almost certainly be temporary if it takes effect at all. And there is no way to predict with any certainty what solutions future Congresses will devise for these issues. In the meantime, estate and gift tax planning will become increasingly more complex as planners either "attempt create flexible estate plans that can accommodate a wide range of possible congressional outcomes," or "review and revise their clients' estate tax plans on a regular basis."