Witnesses Continue Estate Tax Battle

Federal law does allow for payment of estate taxes on an installment basis, but the system for doing so does not reflect the modern business world, Belcher said:

The federal installment payment system does not address new forms of doing business, such as limited liability companies, limited liability partnerships and business trusts, Belcher said.

"A closely held business owner must select carefully the type of business entity for the business enterprise to preserve the ability for the business owner's estate to pay the estate tax in installments under the installment payment provision," Belcher said.

Portability is another concern, said Shirley Kovar, a San Diego lawyer who spoke for the American College of Trust and Estate Counsel, Los Angeles.

The individual exemption is $2 million per individual, and "it is common to say that a married couple would have twice that exemption, but that would not be accurate," Kovar said. "Rather, under current law, upon the death of the first spouse and the transfer of all assets to the surviving spouse, the $2 million exemption of the deceased spouse is lost. When the surviving spouse dies, her estate may contain the assets of both spouses, but the estate of the surviving spouse will only have a single $2 million exemption."

If the individual exemption were portable, that would simplify the transfer process and also would fit with other federal tax policies, such as the joint return policy, that treat married couples as a single entity, Kovar said.