Federal Estate Taxes 2011
They're Back... Maybe
Estate or death taxes were once thought to be only relevant to the rich. In fact, most people were not even aware that there was a tax on the value of someone's estate payable due to death. That changed markedly the last few years, not so much because more people are affected by this tax, just the opposite, but because of the bizarre way in which the Congress has handled, or actually, not handled this matter.
Estate taxes are assessed on the value of assets owed by a decedent at the time of death. Beginning in 2002 through 2009, the minimum amount of assets rose from $1 million to $3.5 million. While the threshold before which taxes must be paid increased, the top tax rate declined from 55% to 45%. For persons who pass away in 2010 there is no estate tax, but there are some adverse income tax consequences that may effect those previously taxable and many otherwise non-taxable estates. The 2010 rules are strange standing alone, but things become very bizarre when in 2011 the law reverts to the 2001 rules. Absent Congressional action in the next few weeks, as of the stroke of midnight on December 31 estates of decedents valued at more than $1 million will again be taxable at rates up to 55%. It seems almost incomprehensible that persons with roughly the same size estates could pass away within seconds of each other and have overwhelmingly different tax liabilities, in the extreme reaching into the millions.
While it appears that there is no consensus among legislators for any of the various proposals that are still being bantered around, and with mid-term elections preoccupying many, when Washington does go back to work later this month there remain a few weeks before year end when this matter could take center stage. Most commentators report that a majority of legislators support one of the various proposals to revise this part of the tax code and that only a minority actually are in favor of returning to the 2001 legislation. The question becomes, are there enough representatives who would compromise and pass new legislation not necessarily of their first choice to increase the tax threshold and bring some rationality into tax policy and planning? If not, then the minority who are content to return to 2001 will win by inaction. Most would feel this is not the best way to adopt legislation, but it is in fact what occurred one year ago.
While no one can say what our estate taxes will look like come January 2011, we can say its been a wild ride and you can be sure that there will be more on this story to come.
