As discussed in numerous posts, the estate tax law as we’ve known it for some time and especially for the last 9 years, through inaction by Congress, got repealed. Not unlike the old native American movie line, “It’s a good day to die”, with no estate tax on the books, for the wealthier Americans “It’s a good year to die”.
Let’s just play out a scenario using an example of someone with an $8 billion estate who died last year. We’ll assume there was no estate tax second to die life insurance in place or any other estate protection. When the second spouse died it would have triggered the maximum marital exemption of $7 million, leaving a taxable estate of $7,993,000,000. That would have been taxable at 45% and the check that would have needed to go to the government within nine months would have been $4,046,850,000.
But thanks to a government too bogged down with money worries to worry about money, one family just hit the $4 billion lottery.
After the governments well intentioned overhaul of the estate tax system over the past decade, really, what are they thinking? The idea was to get the monkey off the back of people with small estates who were losing all they had worked for to a system with an exemption of $600,000 and a tax level of 55%. It was killing families with small businesses, farms and ranches. The only way they could meet the onerous 9 month deadline to pay the taxes was to auction off the estate.
There was never any intent, or was there(?), to create a loophole for the wealthiest Americans. The patriarch of the family I mentioned above was, when he died, the 84th richest man in the world. He could afford to insure against that tax burden and if he didn’t plan ahead, well gosh, his family probably could have struggled through with the remaining $4 billion.
There is some talk that when Congress gets around to fixing the problem they will declare it retroactive to 1/1/2010 thus averting any loss on the part of the government. I can hear the big time attorneys lining up ready to haul that all the way to the Supreme court. Somehow I doubt that the Supreme court will find that Congress has a constitutional right to backdate legislation in order to make more money. If that was feasible they could just raise taxes on everyone and backdate it far enough to get the deficit paid off.
Bottom line. One of these days they will fix it and everything I’ve heard rumored makes it sound as if they will fix it in the right direction, but this is Congress and DC we’re talking about. They could very well keep blowing it off until next year when they will lose an entire decade of movement in the right direction.