You may have read that inaction by Congress is creating a lot of uncertainty about the future of the estate tax. Unlike the income tax, which is based on a year’s worth of activity, the federal estate tax is based on a snapshot – the value of a person’s estate at the date of his or her death. Unless Congress acts, we are headed from having no federal estate tax in 2010 back to taxing estates larger than $1 million, just like in 2002. And, instead of the 2002 top rate of 50% on this excess amount, the 2011 top rate is scheduled to be 55%.
I was in an estate planning seminar recently for Indianapolis attorneys. One of the speakers took a poll of those of us in attendance, asking us which of four possible paths we predict Congress may take. I’ll save the more complicated details, but these paths basically ranged from doing Congress doing nothing this year and letting the tax apply to estates > $1M, to Congress passing legislation for an estate tax with a little more breathing room, such as a tax on only estates greater than $3.5 M (the 2009 level). My colleagues’ and my predictions revealed only one thing: uncertainty, even among professionals. About a quarter of us voted for each of the four possibilities about the future of the estate tax. (For what it’s worth, I was among those who predict that Congress will do nothing, and that the tax is coming back with a vengeance for estates greater than $1 million.)
I believe that current federal deficit levels mean the estate tax (and its resultant revenues) will not go away for a long time. And, its likely application to estates greater than $1 million obviously makes it relevant to many more people, including a majority of our business law and technology law clients. If you consider not just your money in the bank, but the values of your real estate, investment accounts (got a 401k?), life insurance proceeds, and that business you own, there’s a good chance your net worth is at or headed toward $1 million.
There are many reasons to take the time to work with a good estate planning attorney. Minimizing the taxes on your estate is just one of them, and can help you preserve and leave more assets to your family and charity. The interesting challenge for us estate planners, for the time being, will be to develop plans which are effective enough to address the law as it stands but flexible enough to handle other legislative possibilities.
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