By MICHELE F. MIHALJEVICH
Indiana Correspondent

AMES, Iowa — The fate of the federal estate tax probably won’t be decided until after the first of the year, an Iowa State University agricultural law professor said last week.

A lack of votes in the Senate is a key reason why any vote on the issue will wait until after the new Congress is sworn in, said Roger A. McEowen, director of Iowa State’s Center for Agricultural Law and Taxation.

“The lame-duck session is one vote further away from the necessary 60 now than what it was before the election,” McEowen explained. “Plus, (U.S. Senate Majority Leader Harry) Reid has never seemed to want a floor vote on the issue since about June. And it’s too late to do a retroactive fix, so that would seem to indicate they will just let the next Congress deal with it.”

There is no federal estate tax for 2010. If Congress doesn’t act by the end of the year, the tax will return on Jan. 1 with an exemption of $1 million and a tax rate of 55 percent.

From 2001 to last year, the exemption for estate taxes increased gradually from $675,000 to $3.5 million.

McEowen said he expects the new Congress to take up an estate tax bill very early on, adding the U.S. House might first pass a repeal bill, but he doesn’t see that passing in the Senate.

“Ultimately, I think they will pass a bill with at least a $3.5 million exemption and it could go as high at $5 million. And, we will likely get stepped-up basis back. Whatever they do will likely be retroactive to Jan. 1, 2011. The tax rate will probably end up around 35 percent, and could be tiered in a couple of steps.”

In the meantime, McEowen recommended checking existing wills and trusts to be sure they would function the way they were intended if death were to occur. He also suggested making gifts.
Philip Ellis, a rancher in southeastern Wyoming, and his family have been communicating with their attorney and accountant as the end of the year nears.

“We’ve gone back through all our plans, and we think we can continue ranching,” he said. “We’ve been proactive, but we certainly have to have a fix.

“The frustration level continues, absolutely. We would benefit if they could all come together. It seems so obvious to fix it.”
If the exemption level were to return to $3.5 million, Ellis said that would work for his family.

“Why can’t they even come to an agreement on that? They seem to be pushing it up right until the last minute. Earlier, I did have some guarded optimism they would do the right thing.”

The Marsh and Ellis Ranch, in the Bear Creek area, has been in the family for decades. The current ranch was founded in 1923 and Phillip Ellis is the third generation to operate it. Members of his family have been in the area since the 1880s. The family has a cow/calf operation, and the ranch is more than 10,000 acres.