Did you enjoy the rain from Tropical Storm Nicole? We are in one of those weather patterns where every morning there is a new storm to read about. As Congress goes on vacation, the pattern of tax storms heading right towards us remains uninterrupted as well. Last time we talked about tax rates and personal deductions. This week, let’s look at a tax hike that hopefully won’t hit you for a very long time, but it may impact your inheritance and family legacy.
The next wave is the return of the Estate Tax. They say the two things that are certain in life are death and taxes; we might add taxes on death to that list. The common argument in favor of death taxes is that you can’t take it with you. The argument should be who can use it better when you’re gone. Many established businesses and farms with high net values but limited stashes of cash will owe about half to the government starting in 2011 if they are hit with the Estate Tax. Proper planning can help soften the blow, but it is difficult to plan when there are few signals from Congress how this debate will end.
With Congress on vacation until after the election, we can be nearly certain that the Estate Tax will not be passed retroactively for 2010. While this is great news for some very wealthy americans (ex. the Steinbrenner family), if your rich uncle makes it to January here is what you will be facing. Estates will have an exemption of $1 million. Everything above that amount, including home, land, valuables, retirement accounts, and so on will be subject to a tax of 55%. For those with value in non-liquid assets like real estate, or with small businesses and farms, this tax can be very painful. The key is proactive planning, proactive planning, proactive planning!
Consider gifts of $13,000 per year to each of your beneficiaries. This is a good way to move the money tax free and keep it safe from Estate Taxes. Another key is making sure that your assets are titled in both spouses names up to the maximum estate tax limit amounts. If you have done the basic’s and still have an estate problem it’s time to bring in your CPA and a good tax attorney. If you think you fall into this category then now may be the best time to act.
The House has already passed a bill creating relief for families, farms and small businesses with $3.5 million or less in assets, but work on a similar bill in the Senate has stalled out. USA Today writer Sandra Block speculates that the same gridlock that kept Democrats from bringing back the Estate Tax in 2010 will keep Republicans from postponing it in 2011.
As always we are here to help you (and your heirs) pay less taxes!