Committee on Ways and Means, Full Committee, 3-21-01 Testimony

Statement of Lauren Y. Detzel, Attorney,
Dean Mead Egerton Bloodworth Capauano & Bozarth, P.A., Orlando, Florida

Testimony Before the House Committee on Ways and Means

Hearing on President's Tax Relief Proposals that Affect Individuals

March 21, 2001

I. SUMMARY

* Repeal Will Cost Much More Than $236 Billion. While the White House administration claims that the proposed phase out of the estate tax would cost the Federal government $236 Billion over the next ten years, it will undoubtedly cost the United States government much more in lost revenue.

* Repeal of the Gift Tax Will Compromise the Income Tax Because it Will Permit Taxpayers to Shift Income to Those in Lower Tax Brackets. First, the present Federal gift tax system, enacted in 1932, was adopted not just to supplement the estate tax but to preserve the integrity of the Federal income tax system. If the gift tax is repealed, the income tax will be compromised because it will permit taxpayers to give income producing assets to others in lower income tax brackets at no gift tax cost.

* Continued Step-Up in Basis for Inherited Assets Will Erode the Income Tax Even Further by Allowing Individuals to Shift Low Basis Assets to Others Who Will Die Soon. Second, under current law, the income tax basis of an asset is changed to its fair market value when the owner dies, in most cases. This basis adjustment is known as the "income tax free step-up in basis." Without a gift or estate tax, property owners will transfer their appreciated assets to others who will die soon and arrange to reinherit the property in order to secure the step-up in basis. Neither the gifts to the others who will soon die nor the reinheritance will be subject to gift or estate tax.

* Income Taxation of Life Insurance Proceeds Will Have to be Changed or Carryover Basis Will be a Hollow Crown. Under current law, proceeds paid by reason of the death of an insured are not included in gross income. In effect, life insurance proceeds are entitled to the income tax free step-up in basis enjoyed by most other assets owned at death. It seems certain that unless this provision is repealed, individuals simply will move all or a significant portion of their wealth to life insurance policies if a carryover basis system is enacted. If the exclusion from gross income for life insurance proceeds were eliminated as part of a carryover basis system, the impact on the life insurance industry and the beneficiaries of such policies would be significant.

* Carryover Basis Will Represent a New Complex Tax System, which Congress Has Previously Rejected. In the Tax Reform Act of 1976, Congress adopted a carryover basis system for inherited wealth. Four years later, it repealed the system retroactive to its original date of enactment in large measure because it was regarded as too complicated. The same will be true today.

*Widows and Many Others Will Pay More Tax With a Carryover Basis System and No Estate Tax. Today, a widow or widower may inherit assets, pay no estate tax (due to the marital deduction) and secure a complete step-up in basis. Others, under the current tax system, save more income tax from the stepped-up basis of inherited wealth than they pay in estate tax.

*Widows, Charities and Others Will be Adversely Affected by Repeal of the Estate Tax. As already discussed, widows and widowers will be disadvantaged by a repeal of the estate tax unless a complete step-up in basis system is retained. Widows (or widowers) also will likely lose in two other ways. First, most states require that a widow (or widower) inherit a minimum share of the deceased spouse's estate. Although that forced inheritance can be avoided in most states by making gifts to others at least a year before death, usually that does not occur because such gifts result in gift tax. If the barrier of gift tax is taken down, individuals who want to disinherit their spouses will be able to do so much more easily. Second, most married persons leave their entire estate to or in trust for their surviving spouses. The reason is because the tax allows the estate tax to be postponed until the surviving spouse dies. If there is no estate tax, fewer married decedents will choose to have their entire estate dedicated to their surviving spouses. The real impact will fall more severely on women than men because there are many more widows than widowers.

Charities will likely receive less from decedents' estates than they do today. Although it is difficult to quantify what the drop off in bequests to charity will be, many knowledgeable persons think it will be significant. It might be mentioned that the proposal to make the income tax deduction for donations to charity an "above the line" deduction apparently is premised on the theory that giving tax breaks for gifts to charity will spur more charitable giving. The same is true for transfers at death. If there is no tax benefit to making charitable bequests, during lifetime or at death, fewer will do so.

* Severe Complexity Will Arise From a Phased-In Repeal of Estate Tax. Many of the bills would phase in the repeal of the estate tax. Such proposals would represent an enormously complicated system for individuals. Each person would have to have "dual track" wills and other estate planning documents providing, at a minimum, for different dispositions of their wealth upon death depending upon whether they (or, in some cases, their spouses) die before or after the estate tax is totally repealed. Also, a carryover basis system will likely require as much or more planning for individuals and as many decisions in post-death estate administration as does the current estate and gift tax system. Everyone, currently rich or currently poor, will have to retain records of purchases, sales, depreciation, trades and all other factors that could affect ownership and income tax basis to comply with carryover basis rules.

* A More Sensible Approach Should Be Adopted. Virtually, everyone agrees that the Federal estate tax system should be improved. It should be made not to apply to the estates of owners of small family farms and other small family businesses and others whose wealth is also modest. Provisions currently in the Code can be changed to accomplish that. What is critical is for the Congress to thoroughly study the overall social, fiscal and economic impact of any significant change to an important part of our nation's tax laws. The Federal estate and gift tax system certainly is one of those important parts.

II. ANALYSIS

* Repeal Will Cost Much More Than $236 Billion. The $236 Billion revenue loss over the next ten years attributable to the repeal of the estate, gift and generation-skipping transfer taxes (see Subtitle B of the Internal Revenue Code of 1986, as amended) is premised upon an eight to ten-year phase-out of those taxes. The loss of revenue to our Federal government attributable to the collection of those taxes could be as great as $1 Trillion over the ten-year period following complete repeal. If the phase-in of repeal is faster, the cost will increase; if the phase-in is slower, the cost will decrease, all other things being equal. In any case, the $236 Billion estimate of lost revenue to the Federal government fails to take into account that the income tax revenues also will be substantially diminished if the estate and gift tax system is repealed. Income tax revenues will diminish because individuals will be free to transfer income producing assets to others in lower income tax brackets and to transfer assets to others who will die soon, thereby securing the income tax free change in basis that will occur upon death.

* Repeal of the Gift Tax Will Compromise the Income Tax Because it Will Permit Taxpayers to Shift Income to Those in Lower Tax Brackets. The present Federal gift tax system, enacted in 1932, was adopted not just to supplement the estate tax but to preserve the integrity of the Federal income tax system. See Dickman v. United States, 465 U.S. 330 (1984). Repealing that tax will compromise the income tax because it will permit taxpayers, without any gift tax cost, to give income producing assets to others in lower income tax brackets. For example, a father, rather than selling appreciated stock he owns, would give it to his daughter (or a trust for her benefit) who is in a lower income tax bracket than he is. She (or her trust) would sell it and pay a lower tax than her father would have paid. She then could give the proceeds back to her father, again without gift tax. Individuals, in fact, may gift all income producing assets, such as stocks producing dividends, real estate producing rents and bonds producing interest (as well as appreciated assets) to others in lower tax brackets. This will reduce income taxes on those whose income is derived from assets and shift a heavier burden to those whose income is produced by working. John Buckley noted in his article which appeared in Tax Notes, on January 22, 2001, that 70 percent of individual tax returns are filed by individuals who are totally exempt or in the 15 percent tax bracket, thus making the pool of individuals to be used for these purposes quite extensive.

Partnerships also will prove to be a convenient way to control the recognition of gain, the collection of income and its distribution. Without any concerns about estate and gift tax, individuals are likely to form limited partnerships of which they are the general partners and give away (non-voting) limited partnership interests to others in lower income tax brackets which will cause the taxable income and gain to be attributed to the limited partnership units to be taxed to the recipients of such gifts. Because the wealthy individual is the general partner, he can control the distribution of any actual cash to the limited partner and indirectly control the gift of some or all of such cash back to himself.

Individuals with trusted relatives overseas may be able to completely avoid paying any Federal income tax on their income producing assets. They will be able to give the assets to their relatives (either directly or through certain types of trusts or partnerships) who are neither U.S. citizens nor U.S. tax residents. The relatives (or their trusts or partnerships) will be able to invest to avoid U.S. income taxes (such as by investing in United States Treasury Bonds). In turn, these individuals will be able to give the income, directly or indirectly, to the original American property owner who made the gifts of the income producing assets.

Although some may contend that the "anticipatory assignment of income", "sham", and "step transaction" doctrines would prevent such income shifting, those claims probably are meritless unless significant new tax legislation is enacted. Proof of that is contained throughout the Internal Revenue Code, such as the so-called "kiddie" tax contained in section 1, the grantor trust rules contained in sections 671-679, and the family partnership rules contained in section 704(e). In any case, because such gifted transfers will no longer be reported (as the gift tax system will be repealed), enforcement will become extremely problematic. To think that individuals will not take action to reduce their income taxes when the barrier of gift taxation is removed ignores the history of our tax system and is naive.⁽¹⁾

* Continued Step-Up in Basis for Inherited Assets Will Erode the Income Tax Even Further by Allowing Individuals to Shift Low Basis Assets to Others Who Will Die Soon. Under current law, the income tax basis is changed to the asset's fair market value when its owner dies, in most cases. See section 1014(a). This is known as the "income tax free step-up in basis." Without a gift or estate tax, property owners will transfer their appreciated assets to others who will die soon, thereby securing the stepped-up basis and arranging to reinherit the property when the others die.⁽²⁾ Neither the gifts to the others who will soon die nor the reinheritance will be subject to gift or estate tax. And, under current law, the person to whom the assets will be given does not even have to be granted any ownership in the assets that will be included in his or her estate and which will receive the step-up in basis at death. All that need be granted is what is called a "general power of appointment". That is a power to direct that the property may be paid to the person who holds the power, his estate, his creditors or the creditors of his estate. Such a power causes the property to be included in the power holder's estate. See section 2041. But such a power causes estate tax inclusion even if it may be exercised only with the consent of someone who would not be adversely affected by the exercise of the power. For example, an individual holding appreciated property finds an unrelated person who will soon die. The property owner grants the dying person a general power of appointment that may be exercised only with the consent of the property owner's spouse, children, attorney and accountant. It is inconceivable that the person granted the power will be permitted to exercise it. Also, the power causes the property to be included in the power holder's estate even if he is completely unaware of the power. Of course, any system permitting even a partial step-up in basis at death will have to be revised to prevent that result. But other methods to "game" the system are certain to arise. It is appropriate to mention that gaming the system with a step-up in basis rule without estate tax will apply not just to capital gain property but virtually every other type of property, including inventory and other assets which if sold would be taxed as ordinary income.

Not all the bills introduced to repeal the estate tax would permit an unlimited step-up in basis. However, all bills would provide a relatively high level of step-up. That means that the gaming of the type described above would occur even with a limited step-up in basis. A limited step-up in basis merely means it will be harder to achieve a significantly increased basis when someone dies. For example, if a step-up in basis is permitted for $2.8 Million of assets and an individual owns $28 Million of appreciated property, he would have to find ten individuals who will die soon rather than only one. Senate Bill 275 introduced by Senator Kyl on February 7, 2001, provides for a step-up in basis at death equal to the aggregate basis of all of the decedent's property plus $2,800,000.00. Unlike H.R. 8 (the Death Tax Elimination Act of 2000, passed by Congress but vetoed by President Clinton on August 31, 2000) which utilized an asset by asset carryover basis approach, Senate Bill 275 would allow an executor to transfer basis from assets not likely to be sold or which will depreciate (such as personal residences, cars, boats, art, jewelry, etc.) to investment assets to effectively reduce capital gains on the sale of such assets.

Also, depending upon the exact provisions enacted, bills that are intended to limit the level of step-up in basis actually will permit individuals to secure a much greater step-up in basis than the dollar limitation contained in the bill. The reason relates to debt on property. For example, an individual owns real estate having a current fair market value of $10 Million with an income tax basis of only $1 Million. The individual borrows $9 Million before death, securing the debt with the property. (The $9 Million of borrowed cash, of course, has a $9 Million basis). But now there would be an increase in basis because, under current law, which does not appear to be changed by the bills which would limit the step-up in basis, the debt against the real estate would be added to basis upon the individual's death. In fact, as explained in McGrath & Blattmachr, Carryover Basis Under the 1976 Tax Reform Act (Journal of Taxation, 1977) (hereinafter referred to as "McGrath & Blattmachr"), pp. 161-162, the basis of property subject at death to debt could be greater under a carryover basis system than the current system providing for a step-up in basis at death. Moreover, as that book details, other opportunities to avoid the carryover basis system exist and will be developed.

* Income Taxation of Life Insurance Proceeds Will Have to be Changed or Carryover Basis Will Be a Hollow Crown. Under current law, proceeds paid by reason of the death of an insured are not included in gross income. See section 101(a)(1). In effect, life insurance proceeds are entitled to the income tax free step-up in basis enjoyed by most other assets owned at death. It seems certain that unless that provision of the law is repealed, individuals simply will move all or a significant portion of their wealth to life insurance policies if a carryover basis system is enacted. Under the carryover basis system enacted by the Tax Reform Act of 1976, insurance proceeds continued to be excluded from gross income and that represented a severe threat to the integrity of that carryover basis system. For example, individuals will borrow against their appreciated assets, place them into cash value life insurance products, and have the same investments made inside the policy that the individual would have made (or continue to have made) if the cash had not been placed inside of the policy's cash value. If the exclusion from gross income for life insurance proceeds were eliminated as part of a carryover basis system, the impact on the life insurance industry and the beneficiaries of such policies would be significant. It would represent the most severe change in the taxation of life insurance proceeds since the adoption of the Sixteenth Amendment to the United States Constitution. Clearly, serious thought would have to be given to making such a fundamental change to the tax law. Yet serious thought must be given to eliminating or restricting the income tax free receipt of death proceeds under section 101 (a)(1) if any type of carryover basis system is adopted as part of estate tax repeal. As pointed out earlier, failure to limit the step-up in basis at death will go far in destroying the integrity of the Federal income tax system.

* Carryover Basis Will Represent a New Complex Tax System, Which Congress Has Previously Rejected. In the Tax Reform Act of 1976, Congress adopted a carryover basis system for inherited wealth. Four years later, it repealed the system retroactive to its original date of enactment in large measure because it was regarded as so complicated. In fact, the House Ways & Means Committee (or subcommittees of the Committee) held extensive hearings about the system. Most witnesses stated that the system was "unworkable". The complexity of the system is discussed in detail in McGrath & Blattmachr. The same will be true for any carryover basis system enacted today. Yet, as explained above, some type of carryover basis system is certain to be adopted if the estate tax is repealed. Otherwise, the Federal income tax system will be at risk, as detailed earlier.

* Widows and Many Others Will Pay More Tax With a Carryover Basis System and No Estate Tax. Today, a widow or widower may inherit assets, pay no estate tax (due to the estate tax marital deduction allowed under section 2056) and secure a complete step-up in basis. As explained, some type of carryover basis system seems inevitable if the estate tax is repealed. Hence, surviving spouses will be disadvantaged by the new system. Allowing widows (or widowers) to continue to enjoy a complete step-up in basis will erode any carryover basis system intended to apply to others, such as children. For example, a man would leave his appreciated assets to his widow, who would secure the tax free step-up in basis. She could immediately give those assets to her children. The carryover basis system will be eroded, accordingly, if not made to apply to the inheritances of surviving spouses. Others, under the current tax system, save more income tax from the stepped-up basis of inherited wealth than they pay in estate tax. For example, under current law a man dies owning real estate having a gross fair market value of $10 Million, subject to a $9 Million debt, and a basis of close to zero (due to depreciation taken during lifetime or for other reasons). He leaves the real estate to his son. Because the net value of the real estate is only $1 Million, the son will pay no more than $550,000⁽³⁾ in estate tax, and likely less than that. The son's basis in the inherited real estate is the property's gross value of $10 Million. If he sells the property for its fair market value of $10 Million, he pays no capital gains tax, and so he nets $9.45 Million (after the $550,000 estate tax paid). (In fact, if the son could depreciate the basis of the property and deduct the depreciation against ordinary income the step-up in basis would save him even more.) But under the elimination of the estate tax/carryover basis system, he may be limited to his father's basis of zero. Hence, if he sells the real estate for $10 Million, he will net only $8 Million because he will have to pay $2 Million in capital gains tax, and if the debt is still owed, he will be $1 Million "in the hole".

* Widows, Charities and Others Who Will Be Affected by Repeal of the Estate Tax. As already discussed, widows and widowers will be disadvantaged by a repeal of the estate tax unless a complete step-up in basis system is retained. Widows (or widowers) also will likely lose in two other ways. First, most states allow a widow (or widower) to demand a minimum share of the deceased spouse's estate. See e.g., New York EPTL 5-1.1 and Florida Statutes §§ 732.201-228. Although that "forced inheritance" can be avoided in most states by making gifts to others at least a year before death, usually that does not occur because such gifts result in gift tax. If the barrier of gift tax is taken down, individuals who want to disinherit their spouses (or more severely limit what the spouse can demand upon death) will be able to do so much more easily. Second, most married persons leave their entire estates to or in trust for their surviving spouses. The reason is because the tax allows the estate tax to be postponed until the surviving spouse dies. See section 2056(a). If there is no estate tax, fewer married decedents will choose to have their entire estates dedicated to their surviving spouses. The real impact will fall more severely on women than men because there are many more widows than widowers.

Charities will likely receive less from decedents' estates than they do today. Although it is difficult to quantify what the drop off in bequests to charity will be, many knowledgeable persons think it will be significant. See The New York Times (National Edition), Saturday, February 10, 2001, page A-11, entitled, "A Bush Aide Faults Plan to Repeal Estate Tax" ("John J. DiIulio, Jr., Director of the New White House Office of Faith-Based and Community Initiatives, says repeal could undercut another administration priority: encouraging private contributions to charities, religious and nonreligious alike, that help the poor.") It might be mentioned that proposals contained in bills currently before the Congress to make the income tax deduction for donations to charity an "above the line" deduction apparently is premised on the theory that giving tax breaks for gifts to charity will spur more charitable giving. The same is true for transfers at death. In fact, there should be a greater incentive to give more to charity at the 55 percent estate tax bracket than at the lower income tax brackets. If there is no tax benefit to making charitable bequests, during lifetime or at death, fewer will do so.

* Severe Complexity Will Arise From a Phased-In Estate Tax. Many of the bills would phase-in the repeal of the estate tax. Such systems would represent an enormously complicated system for individuals. Each would have to have "dual track" wills and other estate planning documents providing, at a minimum, for different dispositions of their wealth upon death depending upon whether they (or, in some cases, their spouses) die before or after the estate tax is totally repealed.⁽⁴⁾ These individuals also will face the uncertainty of whether total repeal will ever be achieved due to the needs of our government for additional revenue or because of change in political philosophy or change in governing parties. Individuals will be caught in a twilight zone of uncertainty on whether they should make tax-efficient gifts, use the marital deduction, and take other common estate planning steps, such as creating a so-called "personal residence trust" described in section 2702 or a "charitable lead trust" described in section 170(f)(2)(B) or family partnerships. Further, after the estate tax has phased-out, not only will new documents have to be redone, but it may be difficult to unwind the planning done in anticipation of estate tax being paid.

Also, a carryover basis system will likely require as much or more planning for individuals during life and as many decisions in post-death estate administration as does the current estate and gift tax system. See, e.g., McGrath & Balttmachr, Chapter 19. Everyone, currently rich or currently poor, will have to retain records of all purchases, sales, depreciation, trades and all other factors that could affect ownership and income tax basis of all assets (even personal use assets) they ever acquire to comply with carryover basis rules. No matter how high the step-up in basis level the law allows, each person will hope his or her wealth will exceed that level and, as a result, each will have to maintain the records. In fact, with respect to marketable securities, a carryover basis system will require much more record keeping than does the current estate and gift tax system. Under the current system, no records of basis, stock splits, stock dividends, tax free exchanges, etc. need be maintained for purposes of inheritance because of the step-up in basis at death, and the rule for valuation of marketable securities for estate tax purposes is simple and direct. See Treasury Reg. 20.2031-2. Under carryover basis, complete and lifelong record keeping for marketable securities (and all other assets that might be owned at death) must be kept for life. In fact, it might require multi-generational record keeping because assets inherited by a child might be kept until the child, in turn, dies and then inherited by members of the child's family. It is appropriate to mention again that Congress retroactively scrapped the carryover basis system it enacted in 1976 by the Windfall Profit Tax Act of 1980 in significant part on account of the record keeping and administration problems such a system presented.

*The States Will Lose Enormous Revenue if the Federal Estate and Gift Tax Systems Are Repealed. Every state will lose in one way, if the Federal estate and gift tax systems are repealed, and the 43 states (and the District of Columbia) which impose income taxes will lose to an even greater degree. First, every state, without exception, imposes a death tax equal to the state death tax credit allowed under section 2011. That credit reduces the gross Federal estate tax, dollar for dollar, up to the limit set forth in the section. In many states, the estate tax represents a significant portion of the state's revenue. In New Hampshire, for example, it is about 4.5%; in Florida and New York, it is approximately 2.7%. Although some states could enact an independent estate tax system to curb this shortfall, that will be politically difficult if not impossible for many and unconstitutional for others. For example, Florida's Constitution prohibits the imposition of any estate tax, except for the state death tax credit amount because that merely represents "free" revenue sharing from the Federal government to the state. Florida Constitution, Article 7, Section 5.

As indicated, the states (and cities) that impose an income tax will face a more serious erosion of revenue if the gift tax is repealed. The type of shifting of income producing assets to others, which is certain to happen to avoid or reduce Federal income tax, will occur to an even greater degree with respect to avoiding state (and local) income taxes. In fact, it will be easier to avoid state and local income taxes than Federal income taxes. There are several reasons. First, states are limited by the United States Constitution (and often their state constitution as well) as to their ability to tax property located outside of their jurisdiction. Second, individuals can create trusts for their own benefit outside of their home state in jurisdictions which impose no state income tax. That can be done even if the trust permits distributions back to the grantor only with the consent of an "adverse party". See section 677(a). Although trusts reach the top Federal income tax rate at very low levels of taxable income, so no Federal income tax may be saved by creating such a trust, all state and local tax may be avoided. If the Federal government loses no income tax revenue by such shifting of income, it will have no incentive to try to challenge such arrangements. And, of course, virtually every state (and local) income tax system relies on enforcement primarily by the IRS. That, in turn, raises another reason why the ability to shift income away from the states will occur. It simply will be impossible, as a practical matter, for the states to attack such arrangements. The states (and cities) will not even be aware that the shift of ownership has occurred because there need be no reporting of such gifts of income producing property because the Federal gift tax will be repealed.

As indicated, the impact on many states will be more significant than the loss of the state death tax credit amount. For example, in New York State, state income taxes on capital gains, dividends and interest comprise about 9% of that state's total revenues. Certainly, not all that tax will be avoided but it is likely a significant portion will be. New York's income tax reaches a level of only about 6%. In states, such as Oregon and California, where the tax rates are higher, the erosion will be greater.

It is incumbent upon the Congress to consider the impact on the states in considering what should be done with respect to the Federal estate and gift tax systems.

*A More Sensible Approach Should Be Adopted. Certainly, the Federal estate and gift tax system should be revised to make it apply in ways that are fairer and which simplify the system. Provisions already in the Internal Revenue Code reduce or eliminate estate tax on farms and other closely held business and provide ways in which the estate tax may be paid over an extended time. See sections 2032A, 2057, and 6166. Certainly, the limitations contained in the Code should be increased and, perhaps, liberalized and the provisions simplified. Also, the basic estate tax exemption (currently $675,000) should be increased, and then "indexed" for inflation. Also, the initial rates above the exemption (now 37%) should be reduced, the "brackets" spread out and the top rate (of 55%) should begin only at a very high level (such as $10 Million). These brackets should also be indexed for inflation. However, as recently suggested by noted commentator, Steve Leimberg, "no matter which side of the repeal/reform issue you are on . . ., it is essential to perform a thorough and multi-dimensional (and ideally bipartisan and professionally conducted) impact study before any new major tax legislation is passed so that the overall economic and social implications and costs of proposed tax law changes are thoroughly considered." He goes on to note that "there is no 'free lunch' in the tax law. All change--no matter how it is presented to the public comes at a cost to someone. We need our leaders on both sides of the political fence to be more open, honest and provide better and more complete explanations of how tax law changes affect various segments of the population."

1. An article written by Jonathan Blattmachr and Mitchell Gans cites numerous examples of the potential to "game" the income tax system. See "Wealth Transfer Tax Repeal: Some Thoughts on Policy & Planning", Trusts & Estates, Volume 140 #2 pg. 49 (Feb. 2001).

2. Section 1014(e) disallows a basis adjustment for property given to a decedent within one year of his or her death but only if the property is reinherited by the donor. It is relatively easy to circumvent this provision by having the decedent create a trust for the benefit of the donor and others such as other members of the donor's family.

3. The Federal estate tax, in fact, can rise to 60% in some cases. See section 2001(c)(2).

4. In addition, all wills that have previously been "estate tax planned" will need to be reviewed and/or revised, particularly those that provide a marital deduction formula bequest to a spouse equal to the amount necessary to reduce the estate tax to zero. If there is no estate tax or need for a marital deduction, these formula clauses could end up providing that the spouse receives nothing.