Many know that the estate tax expired in 2010; however, unless you are fortunate enough to die this year, this expiration will mean nothing. What most stakeholders are banking on is lawmaking that may never happen. Without replacement legislation, the estate tax will make a vigorous return in 2011 and while many know this, the extent of the reanimated tax is not so widely reported. In 2009 the estate tax was 45% for all assets greater than $3.5 million (per spouse); in 2011, if left unaltered, it will be 55% for all assets over $1 million (per spouse).The thinking was with such a hike in place, it would be politically impossible to let it stand, forcing either the abolition or continuation of the tax at its 2009 rate. This was done well before the auto bailouts, the bank bailouts, cash for clunkers, the stimulus package (or packages) and possibly healthcare. Today it seems realistically impossible not to raise taxes somehow. Thus, sitting idly by and letting the estate tax simply increase on its own is a political windfall.
Needless to say, the reduction of the amount excludable to $1 million and the increased rate of 55% will affect many people. It will no longer be a tax on rich estates in excess of $3.5 million; this will impact a large swath of upper middle class families. Many, who previously wouldn’t have considered themselves rich, will find the IRS has a much different opinion. Two effects of this plan become immediately clear, 1.) the IRS will be very busy; and, 2.) estate tax planners will be very busy. If legislators act, the exemption may be increased to pre 2010 levels (between $3-4 million); however, we are currently in a no man’s land for estate tax planning.
For the many who are concerned, here are some strategies which can be utilized to avoid the estate tax.
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