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.Â
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.Â
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.Â
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.Â
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.Â
Bottom line. We probably wonâ€™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 protectÂ what youâ€™ve worked all your life to build.