The proposal to restore the estate tax to 2009 levels may re-ignite discussions among wealthy families and advisers that occurred last year when the threshold was set to drop to $1 million, said Jay Messing. He’s a senior director of planning in the Northeast for the private bank unit of San Francisco-based Wells Fargo & Co.

Obama’s proposal, which lays out his priorities on taxes and spending, is not expected to advance in Congress, where the Republican-controlled House and Democratic-held Senate have adopted non-binding budget resolutions so different in their goals that there’s little prospect for compromise.

Recycled Proposals

The budget plan recycles proposals from prior years including those to curtail the use of so-called grantor trusts, change rules around valuations of assets in estates and limit to 90 years how long trusts can escape generation-skipping transfer taxes. The proposals related to estate and gift taxes are projected to raise about $79 billion over the next decade.

“These are powerful tools,” said Carol Harrington, head of the private client group at the law firm of McDermott, Will & Emery in Chicago. While the proposals would have a long-term effect if enacted, they probably won’t raise as much revenue as the budget projects over the next several years, she said.

“People just won’t use the technique,” Harrington said. Instead, they will look for other tax-advantaged ways to pass wealth to heirs or keep appreciating assets in their estate until they die, she said.

IRA Limits

Obama’s budget plan also would limit using IRAs as an estate-planning tool because it generally would require non- spouse beneficiaries to take distributions from IRAs they inherit over no more than five years. That provision would raise about $4.9 billion over the next decade.

IRAs are retirement accounts that let people contribute money without paying income taxes up front. The money grows tax- free inside the account, and holders must pay taxes at ordinary income rates when they withdraw the funds.

IRA owners can begin withdrawing money without penalty after they turn 59 1/2 and must start withdrawing money after they turn 70 1/2.