If you have questions about what is going to happen to the Estate Tax for people dying in 2011 and beyond, you are not alone. Just Google “estate tax.” I did, and got 179,000,000 results! In those results were the Internal Revenue Service Frequently Asked Questions on Estate Taxes , a poll being done by the Wall Street Journal asking How Much the Estate Tax Should Be, (not surprisingly, 63% of the poll voters think the estate tax should be repealed all together), and thousands of articles about the general mess Congress has created by not resolving this issue.
As most people know by now, without Congressional action, the federal estate tax is coming back on January 1, 2011. Unless Congress can come up with an alternative plan, have it pass both houses, and get it signed by President Obama, estates over $1,000,000 will be paying 55% in taxes. Although that may seem like a large estate, if you live in the Northeast, where property values remain higher than other parts of the country, many people are approaching that figure.
So what are people with estates over $1,000,000 supposed to do? The answer, I believe, depends on several factors:
How much over $1,000,000 is the projected estate?
If the estate is barely over the amount, allowed deductions from the estate may reduce the gross estate to below the $1,000,000 mark.
The age and health of the person doing the planning.
If the person is relatively young, it may just not make sense to start gifting money away. Congress may not be able to resolve this issue before January 2011, but may do so in the next few years.
For some older people with significant wealth, however, gifting may be the right choice. The gift tax rate this year, for amounts gifted over $13,000, is 35%. Still high, but lower than the 55% estate tax rate. “Gifting on the Rise as Rich Look to Duck 55% Tax”;
The current distribution plan for the estate.
If there are charitable bequests already incorporated into the plan, those bequests may bring the taxable estate below the $1,000,000 mark;
How much the person cares about the estate being taxed.
Some notable, very wealthy individuals are actually in favor of the estate tax. Bill Gates and Warren Buffett are two of the most quoted. “How Billionaires are Fighting Over Taxes” Although most people would prefer to avoid paying taxes, it may be that planning to avoid the tax is not what the client wishes.
Unfortunately, there is no simple answer for everyone with a taxable estate. If you have not heard from your attorney, it may be a good idea to give them a call before the end of this year and ask for a review of your estate plan distribution.