“Here’s the deal…”. When my wife says that to me it usually means something has gone wrong and I’m about to get the responsibility for fixing it.
It is inconceivable that congress, in 2009, failed to ‘do anything’ regarding the estate tax laws which resulted in there being no estate tax in 2010 no matter how big your estate. As a result, the federal government lost billions of dollars in taxes as many wealthy families got a free pass on estate taxes. The simple solution, one requiring no debate or workouts in a congressional committee, would have been to simply extend the 2009 estate tax rules. Under that scenario, individuals would have had an estate tax exemption of $3.5 million ($7 million for couples) with everything above the exemption being taxed at a maximum tax rate of 45%. At least four well-known billionaires died this year: New York Yankees owner, George Steinbrenner, worth an estimated $1.1 billion; Media mogul, John Kluge, worth an estimated $6.5 billion; Houston, Texas energy tycoon, Dan Duncan, worth an estimated $9 billion; and San Francisco real estate czar, Walter Shorenstein, worth an estimated $1 billion.
Now, as 2010 speeds to a close, congress has again failed to act leaving all of the estate attorney’s and financial advisors in a quandary as to how to advise clients regarding their estate plan. Assuming congress does nothing again (a good bet), for 2011, the estate tax exemption will drop to $1 million with tax rates above that amount as high as 55%! This new level of taxation will cast a wide net estimated at around two million Americans including many of the so-called middle class that President Obama has promised, “No new taxes”. Think about it. If you own a home, have a retirement or savings plan and have adequate life insurance to protect your family, you very likely have an estate large enough to be subject to the 2011 taxes. And since most people pay taxes on their money when they earn it and also pay taxes on the earnings on their savings in the form of interest and dividends, the estate tax amounts to having our money taxed at least twice.
As 2010 rolls towards its finals days, I suspect there will be some families who face an uncomfortable decision. If the death of a wealthy family member is eminent, do you pull the plug and save millions in taxes or do you wait for an early demise in 2011 and face thousands or perhaps millions in estate taxes? I know my own father (age 92 and in great health) would get great pleasure in beating the government out of a large tax bill.
“So here’s the deal”, our congressional representatives will not take action unless we, the taxpayers, demand it, so I’ll make it easy for you to be an activist. Contact your representatives at www.contactingthecongress.org and demand they take action on the estate tax issue before 2011. This is what we are paying them to do. Let’s make them earn their paycheck!