By DAVID BERTOLA
dbertola@bizjournals.com | 716-541-1621

As 2010 draws to a close, so does the 12-month period when there was no estate tax. And since it's returning, some area tax professionals say a Republican Congress may take a closer look at the level of exclusions in coming months.

"This is clearly an area that needs guidance, and I think that will happen next year," said Mark Tronconi, tax partner at Tronconi Segarra & Associates LLP.

Federal tax laws dictated different credit shelter amounts on estates in 2008 and 2009. There were no federal taxes on estates in 2010. Unless new federal law is enacted, the estate tax will return Jan. 1 and revert to the same rates that were in effect in 2001, which means a $3.5 million exemption at the federal level and a $1 million exemption in New York.

Dale Demyanick is partner-in-charge of the tax practice at Lumsden McCormick LLP. He said if nothing is changed come Jan. 1, in addition to the exclusions, the top rate - the highest marginal rate an estate can be taxed on - would be 55 percent. That's where it was until it was dropped to 45 percent in 2009.

$1 million can add up quickly

Tronconi said it's plausible to have a two-income household with a sizable house, a pair of 401(k)s and life insurance policies and other assets that get to that number.

"And in a place like California, where properties are highly valued, that just might be someone's home and the rest would be subject to estate tax," said Eileen Semmler, partner in The Bonadio Group.

In 2009, New York's estate tax exemption was $1 million, and there was a $3.5 million federal exclusion. Semmler said that helped cover a lot of small businesses and the general public. She anticipates a Republican Congress in 2011 to spur some compromise on the estate tax.

"I think there is more incentive to get something done because of concern of small businesses and farms being hit with a tax so hard that families wouldn't be able to continue on with them," she said. "With a Republican majority in the house, I think they'll have to do a little more compromising."

When asked what the exclusion might eventually be, Semmler said, "In my crystal ball I would predict the exclusion would be somewhere between $3.5 million and $5 million. I think it would be nice if it were indexed for inflation."

Segarra provided the same dollar range as a possibility.

"We may see it fine-tuned a little bit, where you can exclude $3.5 million to $5 million in assets, but I think we'll always have an estate tax," he said.

Another aspect that's been discussed is making the exclusion more portable, according to Semmler.

"Under the 2009 law, individuals had a $3.5 million exclusion and people had an incentive to transfer assets to a spouse," she said.

This way, if someone had $3.5 million in assets and their spouse did not, some assets could be transferred to a spouse who could benefit from an exclusion.

As an example, Demyanick said if a married couple's assets are properly structured, $7 millon in exemptions could apply, or $3.5 million for each spouse.

"But that takes planning," he said. "If a husband and wife in 2009 had $7 million in the husband's name and the wife died first, the exclusion would not be used on her."

But when the husband dies, half of the the $7 million - after the $3.5 million exclusion - would be subject to the estate tax.