The Past, Present and Future of Estate
Taxes:
Things to Consider
In case you’ve been in a sensory deprivation tank since
the ’80s, you know that federal budget deficits have
become staggering. In 2011, the United States is scheduled
to spend $1.3 trillion more than it takes
in. Furthermore, the current national debt as
of the date of this letter is more than $15 trillion.
The debate is raging in Washington over how to solve
the deficit problem. Lots of our representatives believe
that a tax increase is inevitable. From a philosophical
perspective, it’s hard to argue that there’s a tax more
clearly associated with the rich than
estate taxes.
The federal estate tax exemption - the amount that
can be passed to kids without having to worry about
estate taxes - for calendar years 2011 and 2012 is scheduled
to be $5 million for a single person. For a married
couple the exemption can be $10 million. The tax rate
on the estate in excess of those amounts is a flat 35
percent.
If Congress and the President do nothing prior to
the end of 2012, at the beginning of 2013 the exemption
amount is scheduled to drop to $1 million, and the top
estate tax rate will be 55 percent.
The IRS published statistics a few months ago about
federal estate tax returns filed for those who passed
away in 2007. What do the statistics tell us about estate
taxes then and now?
- Whether the exemption amount ends up being $1 million,
$3.5 million, or $5 million, it shouldn’t make a difference
of more than about 25 percent in the amount of estate
taxes collected for a given year.
- Annual estate tax collections are not a big
revenue number, relatively speaking, for the
federal government. They represent about 2 percent
of the budget deficit, and .2 percent
of the national debt.
- A smaller estate tax exemption will probably
disproportionately affect the survival of family farms
unless special protections are built in.
- A smaller estate tax exemption will probably
not disproportionately hurt closely held businesses.
Do these observations provide any assurance about what
will happen with federal estate taxes? Unfortunately,
no. Feel welcome to keep in touch with me so you can
stay in touch with the latest federal estate tax developments.
My own reading of the statistics leads me to conclude
that most people who should be worried about estate
taxes don’t have enough life insurance to help pay the
tax bill. Even those who have made plans to pay estate
taxes should have such plans reviewed to be sure they
are effective and up-to-date.
As always, please feel free to call to discuss these
of other financial security issues of concern.
This information is not intended to be a substitute
for specific individualized tax or legal advice. We
suggest that you discuss your situation with a qualified
tax or legal advisor. This material was prepared for
use by LPL Financial advisors affiliated with Bay Financial
Associates, LLC.
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