Subscribe to this BlogThe estate tax you should worry about
There's a lot of speculation about what will happen to the federal estate tax (or the "death tax," if you oppose it) next year. A handful of bills have been introduced in Congress recently, many of which would raise the current exemption from $3.5 million to $5 million and keep the tax rate at 45%. (Under current law, the estate tax disappears in 2010 but is reinstated in 2011 at 55% on estates larger than $1 million.)
Whether the exemption jumps from $3.5 million to $5 million — or disappears altogether — you may assume that you don't have an estate tax issue. Few of us leave behind that much wealth. But here's where many people go wrong: While you may not owe federal taxes you could be on the hook to your state.
That's right, nearly half of states have either an estate tax, an inheritance tax or a combination of both. And in many cases, the state exemption is much lower than what the Feds let you get away with these days. (If you recall, back at the start of the decade, the federal exemption was $675,000. In a vintage move, New Jersey and Rhode Island still peg their exemption at that level.)
On the bright side, the death tax rate is less in states — no more than 20%. But check on your state's current law at your local department of revenue. (Delaware reinstated an estate tax this summer.) If your assets exceed the exemption level, speak with an estate planning attorney.
And while you've got taxes on your mind, don't forget to make these tax-saving moves before the end of the year.
Visiting an Estate Planning attorney is essential for this kind of thing.
Not many people know of the trust vehicles you can use when you die and you and your spouse leave over $7M to your heirs, completely tax free. ($3.5M per spouse in 2009).
The government doesn't have to get your money – paying a small price now can stop them.
Well Rex, since you don't think we should penalize people for being successful do you agree that income tax should be tiered? Or that capital gains should be taxed?
Without estate taxes the wealthy would be able to perpetuate their wealth among future generations without work. In essence the future generations would get the benefit of society without paying for it (work or taxes). Is that the sort of world you would wish?
The issue has very little to do with the estate tax. In fact, I would venture to guess that many in Congress HOPE that the estate tax will go away…not due to their own, inherent wealth, although that was probably garnered from the taxpayers. But, there is a little known stealth tax that would affect FAR MORE taxpayers than the estate tax. The loss of the step-up in basis for capitals gains at death would be a HUGE boon for the treasury, a significant loss to taxpayers, and is indeed in the Sunset Provision passed back in early 2000 by the Bush administration. Folks, you might want to look at this, since the treasury knows that within 10-15 years, the single largest transfer of wealth will take place that has ever happened in this country via the death of our senior population, who incidentally, control the vast majority of the wealth in this nation. Solid Estate Planning can be engaged in to mitigate much of the estate tax, but NOTHING can be done to change the capital structure of an asset. At death, inherited assets generally receive the as a cost basis the fair market value of the asset at date of death. If the treasury gets its way, this stepped up basis will be removed, and the asset's basis will remain that of the decedent, meaning that there will be an ENORMOUS capital gains tax assessed at death. This would affect far more than the 2% or so of estate tax candidates that the treasury says falls into their radar. Something to think about!
I think the estate tax is wrong.
We are taxed
…when we earn income (Federal, State, Local)
…on capital gains, dividends, interest
…when we spend money (sales tax)
…after we buy cars, motorcycles,boats, campers (personal property tax)
…when we retire and receive S.S. benefits
If after paying all these taxes, we still manage to save a large sum of money…when we die, we get taxed again?
Estate taxes are wrong…even if 98% of people will never be affected by it.
We shouldn't be penalizing people for being successful.
How about we as a nation pass a balanced budget amendment and don't spend more than we take in?
The estate tax results in taking money away from the family that knows how to invest and grow that money in our economy. The money is then taken over by our government whom only knows how to waste the money.