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We would have certainly guessed that Congress would have dealt with the estate tax issue by now but, well, we would have guessed wrong for the second year in a row. There is still a lot of uncertainty about the future of estate tax law and along with that is the very real need for anyone with a little money socked away to understand where they stand in relation to their estate tax life insurance.

To summarize where we started and where we are today and potentially next year we have to go back to 2000 when the estate tax law was changed. Back then there was a $600,000 exemption on estate value and everything over the exemption was subject to a federal tax of 55%. With the 2000 changes the exemption was changed to $1,000,000 and the tax rate to 45%. This allowed a lot more families to keep more of what they had worked so hard for. The law was on a schedule to make it more and more fair until it reached a pinnacle in 2009.

In 2009 the exemption was raised to its’ ultimate level of $3.5 million, an aggregate $7 million per married couple and the tax rate remained at 45% of everything above the exemption limit. This allowed for people to do estate planning based on a more liberal tax rate and exemption. Many families were able to carry less second to die life insurance, or estate tax life insurance because of the new higher exemption.

But, as with all things government, just when they get something fixed the potential lays in wait to mess it up again. When the law went into affect to raise the exemptions it was intended to be part of a permanent repeal that would be worked out during the period 2000-2009. The permanent repeal never happened so, in someone’s infinite wisdom, anticipating that Congress might not be able to agree on anything in 9 years, in 2010 estate taxes were repealed completely. No tax. No exemption. No nothing. If you were a rich person that wanted to pass on everything without the government touching it, it was, and still is, a good year to die.

Now once this year is over, assuming Congress still doesn’t act, estate taxes will reappear, but at the 2000 rates with the $1,000,000 exemption and 45% tax rate. What this means is that everyone who had just finished planning their life insurance needs around the 2009 estate tax laws, needs to go back to their life insurance agent and at least get enough term insurance in force to pay estate taxes until Congress figures it out. I don’t know. With their track record it might be better to go ahead and make it permanent.

Bottom line. All of the best minds in estate planning, from financial planners and attorneys to life insurance agencies that specialize in estate tax life insurance really thought this would all be worked out before 2010….and now it’s almost 2011. Better to make sure you’re covered than to leave yourself at the mercy of a government that is too bogged down to even run a muck.