George Steinbrenner, owner of the New York Yankees, really hit a ball out of the park. He died on July13, allowing his beneficiaries to win the estate tax lottery.
That is because the estate tax expired in 2009, so no tax has been imposed on estates in 2010, including the more than $1.15 billion he left. But the tax will come back in some form in 2011, and at what percentage and exemption level is of extreme importance to estate planning lawyers and their clients.
The House of Representatives last year passed a bill that would permanently set the tax at 45 percent, with a $3.5 million exemption. In July, Senators Jon Kyl (R-AZ) and Blanche Lincoln(D-AR) made an alternate proposal that would lower the percentage to 35 percent with an eventual $5 million exemption. Analysts say that a compromise could be made between these two possibilities in the number of years for phase-in or for different rates for different kinds of estates.
A real problem will occur if Congress becomes paralyzed and does not act on it at all by Dec.31st. In that event, the estate tax will revert to the pre-2001 rate of 55 percent and a $1 million exemption.
That would be disastrous, say estate planning lawyers, because now more than ever, middle class people are amassing $1 million or more in assets easily, due to increased home prices and success with 401(k)s , IRAs, and other investments. So, this rate would be akin to a tax on the middle class.
But would Congress let this happen? Some say yes, because it would be a passive way to raise revenue. Others say that would be crazy, and that Congress could address the new tax rate as early as next month, or right after the elections.
Another concern is that whatever tax rate is instituted will be made retroactive on 2010 estates. That is seen as unlikely, however.
There is much uncertainty in the area of estate planning right now. Contact an estate lawyer to find out the best way to protect your assets.
- How Long Do I Have to Wait to Receive My Inheritance? - August 16, 2022
- Can I Prevent a Spendthrift Beneficiary from Squandering an Inheritance? - August 11, 2022
- Why Should I Consider Guardianship for My Parent? - August 9, 2022