Archive for November 26th, 2007

Estate Tax Repeal – Will It Really Happen?

A recent senate finance committee meeting was convened to hear both sides of the argument on the 2010 repeal of estate taxes. As I have pointed out in previous posts, the estate tax has been modified over the past 7 years to make it less of a burden on medium sized estates. 

In 2009, the size of the estate exempt from estate taxes will have grown from a pathetic $600,000 in 2000 to $3.5 million. To put that in perspective, in 2000, a $3.5 million estate would have owed nearly $1.5 million in estate taxes. In 2009 it would not be taxable. 

The next step comes in 2010. That is the year, if the current legislation is left in place that the estate tax will go away completely at the federal level. You would think that the idea of no estate taxes would have the wealthiest individuals drooling, but just the opposite has happened. 

Speaking at this particular hearing was Warren Buffett, one of the wealthiest men in America. Even though his estate would be taxed billions of dollars, he thinks it should be left in place. One of his primary arguments had to do with how the government was going to replace nearly $24 billion in lost annual revenue. 

One of the strongest arguments against the estate tax, and the primary reason that the exemption has been brought to a more realistic level is the portion of the estate tax law that makes the taxes due within 9 months of the death. Settling an estate of any size in 9 months is nearly impossible if everything goes right. If there are significant taxes due, the estate not only has to be settled, but there may have to be substantial liquidation in order to meet the tax burden. It is this fire sale mentality that causes the demise of many ranches and businesses. Hopefully one of the changes that will come out of the fray is a longer period for estate tax settlement. 

Bottom line. We probably won’t have a good feel for how this will all shake out, until it shakes out in 2010. Until then, life insurance for estate preservation is the most viable tool out there to protect  what you’ve worked all your life to build.

Add comment November 26th, 2007

Estate Tax Burden Easing?

Currently the federal estate tax exemption, the amount of an estate that can pass on to a family without being taxed (at the federal level), is $2,000,000. This is up from an estate gobbling $600,000 just 7 years ago.

Remember that a persons entire estate can pass tax free to their spouse, no matter how large it is. Estate taxes come due upon the death of the second spouse.  This is the point at which many families see much of what their parents have accumulated gobbled up by the government, in many cases trashing a lifetime’s worth of work.

In 2009 the estate tax exemption will increase to $3,500,000 and in theory, if the congress doesn’t do anything to change the course of events, the federal estate tax will be gone in 2010. Two scenarios will play out at that point.

First, if the federal goverment actually lets the estate tax disappear, state governments stand poised to fill that void by increasing their state death tax limits. Many states have been raising their taxes as the exemption has been increasing at the federal level. The states can already see the dollar signs. So, while the payee will have changed, the drain on estates will likely continue.

The other direction this could take, the more likely direction in my mind, is that congress will vote to leave the $3.5 million exemption in place, having accomplished what needed to be done, giving tremendous relief to mid sized estates.

Bottom line. Estate taxes, whether federal or state, will likely continue beyond the drop dead date of 2010. One of the most efficient and cost effective ways to leverage the pay off of those taxes is through a second to die life insurance policy owned by an irrevocable life insurance trust. Whether your estate is over the taxable limit, of headed for it, you should be looking at this tool.

2 comments November 26th, 2007

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