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Talks advance on estate tax

November 10, 2010

Lawmakers are looking to give taxpayers the option of prepaying their estate tax, sources close to the issue said this month. 

If taxpayers choose to that option, payments would be at a lower tax rate than if made after death. It currently is unclear what the lower rate would be for prepayments. 

According to the latest talks, the tax rate would be set at 35 percent for those estates worth more than $3.5 million, but the exemption would ultimately increase over time to $5 million and would not be indexed for inflation.

Providing taxpayers with a prepayment option and lowering the estate tax to 35 percent has been discussed for months, but sources said conversations on the matter turned a corner after lawmakers learned the proposal would be less expensive than originally expected. 

The proposal's official cost is unknown, since it hasn't been scored and lawmakers have yet to ink the deal. However, a potential method to pay for it could be to place limits on Grantor Retained Annuity Trusts (GRATs). The House-passed small business jobs bill includes a similar provision. 

The estate tax stands repealed in 2010. But barring congressional action, it returns next year to pre-2001 levels by socking estates worth more than $1 million with a tax that tops out at 55 percent. Republicans and more than a few Democrats oppose this level of taxation.