Current law does not impose death taxes unless your taxable estate exceeds $3.5 million. That $3.5 million becomes unlimited for calendar year 2010 unless Congress takes action before year-end. This means that if Bill and Melinda Gates died next year, instead of the government receiving perhaps billions in death taxes, they would receive nothing…nada…zippo! And think of all the wealthy people who are in hospitals on life support. Avoiding millions in estate taxes would give a whole new meaning to 'Pull the Plug'! We all know the government is not going to allow this to happen, but time is fast running out.
Prior to the 2009 trillion dollar-plus deficit, both Democrats and Republicans had arrived at a consensus opinion that the estate tax exemption (the size estate you can own before you are subject to death taxes) should be set at $3.5 million dollars. The combination of distraction over passing healthcare reform and the almost incomprehensible rising national debt has now left the final decisions regarding new estate tax rules up in the air.
To complicate matters even further, the current estate tax law is scheduled to automatically be repealed as of December 31, 2010 and revert back to prior law. This means that if Congress does nothing, anyone dying with an estate exceeding $1 million could be subject to death tax rates as high as 55% on amounts above the $1 million limit. This would include millions of middle-class American families who own a home and have adequate life insurance.
Here’s what I believe will happen:
In November, Congress will extend the current estate tax exemption for one year. Meaning that for 2010, the estate tax exemption will remain $3.5 million. This will buy Congress time to focus on this issue, which will likely be one of the top campaign issues of the 2010 mid-term elections. Politicians running for re-election are likely to feel the pressure of cross-currents of voting for a law that helps the rich avoid taxes (i.e. making the $3.5 million exemption permanent) versus doing nothing and allowing the current law to 'sunset' on December 31, 2010, which will, in effect, cause millions of middle-class Americans to be subject to death taxes.
What you should do now:
Congress’ failure to take action makes it extremely difficult to properly plan your estate. Take a moment to estimate your Estate Net Worth: All of your assets plus all of your life insurance on both spouses minus all of your liabilities. If the net result is greater than $3.5 million, sit down with an estate attorney to review your estate plan.
If the net result is greater than $1 million, watch closely to see what Congress does next year regarding estate taxes. They’ll either do nothing and allow the amount you can pass on free of death taxes to revert back to $1 million or they’ll make a permanent change based on a higher limit. Plan your estate accordingly.
Let your voice be heard. Contact your congressional representative and demand that they address this issue quickly so that you can properly plan your estate for your family. Go to the Resource Center at www.welchgroup.com; click on ‘Links’; then Congressional Representatives Contact List.