We recently saw a reduction in the rate of the estate tax and an increase in the exclusion amount with the passage of the new tax relief bill in the middle of December. At first glance this may seem like a positive development, but let’s take a closer look at the matter from a purely objective perspective.
The estate tax was repealed during the 2010 calendar year, but in 2009 the rate of the tax was 45% and the exclusion was $3.5 million. If the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 had not been passed, the rate of the tax was scheduled to revert to the 2001 level of 55%, and the exclusion was to go back to the 2002 level of $1 million. Due to this new legislation the rate of tax is now 35% and the exclusion is $5 million.
In reality, it could be argued that even a 1% estate tax is excessive and unnecessary. This is because of the fact that the resources that comprise your estate are the remainder that was left over after you paid perhaps 40% of your earnings in income taxes. The estate tax is an instance of double taxation
In addition to the fact that the estate tax is levied on monies that have already been taxed, the rate is excessive. A tax that takes anywhere from 35% to 55% of your life savings for the transgression of dying is simply jaw-dropping. How can the IRS justify taking such a huge bite out of your after-tax savings as you attempt to pass it along to your heirs?
The good news is that there are some people in Congress who feel as though the estate tax should be repealed. No less than five bills have been introduced to the House calling for a repeal of the death tax. We will see how they proceed through the legislative process, and we can be certain that this will be a hot topic as the 2012 election season heats up.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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