Obama agrees to lower estate taxes

Financial planners who advise on the estate tax have had plenty to keep them busy the past couple of years. President George W. Bush signed laws that gradually reduced the estate tax for people who inherited money, until the tax went away completely in 2010. But those tax cuts were set to expire in 2011, sending the estate tax skyrocketing. With no action, the estate tax would have gone up to a 55 percent tax rate, exempting the first $1 million in value.

As a presidential candidate, Barack Obama proposed that the inheritance tax be continued. He proposed that estates worth more than $3.5 million be taxed at 45 percent.

A few weeks ago,  President Obama negotiated a wide-ranging tax agreement with Senate Republicans. The agreement continues current income tax rates for everyone. It also continues other tax cuts that were part of the 2009 economic stimulus law. It grants an additional year of unemployment benefits for workers who qualify, and it gives a one-year reduction of Social Security taxes that would put 2 percent of pay back into workers' paychecks.

The agreement also set the inheritance tax lower than Obama proposed -- at 35 percent on the value of estates over $5 million, exempting the first $5 million.

Congress approved the framework, and Obama signed the measure into law on Dec. 17, 2010.

In rating this promise, Obama pledged to set the tax rates at 2009 levels. The new law is more generous than that to heirs of estates worth more than $3.5 million. Instead of the 45 percent tax rate, Obama had promised, the rate is 35 percent. Still, it does continue the tax, although only for two years. Going forward, we'll revisit this promise to see where it stands. For now, because the rates fall short of what Obama proposed, we rate it Compromise.