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In my mind the estate tax changes made in 2001 were a great idea with a great direction and one of the stupidest endings that could be thought up. Why would Congress and the President go so far to finally bring something out of the dark ages and make it fair, only to repeal it and put it right back where it was 10 years earlier.

In their infinite wisdom Congress has created a tremendous incentive for rich folks to die in 2010, the year that the estate tax per their current plan will disappear altogether. Kind of a new spin on the old native American movie line, “It’s a good day to die”. In this case you’ve been given a whole year to get er done.

I read a good article on estate tax myths yesterday that brought up some interesting points. Before the estate tax exemption limits were raised about 1 in 10 farming/ranching businesses were put at risk (the family losing the farm) by the estate tax system. For those that followed the debate and changes, small farms and ranches were front and center in that effort. Turns out that most of the 10% could have fallen back on tax relief measures specifically put in place to keep families from having to sell farmland.

The real interest should have been on the small business owners. About 1 in 3 of small business owner estates didn’t have enough liquid assets available to pay the taxes. Remember that these taxes are due within 9 months of the death of an individual estate owner or the second spouse that owns the estate. For small business, many of which have everything tied up in the business, the only way to meet the 9 month deadline is to sell off all the assets of the business in a hurry. Selling in a hurry, a fire sale so to speak, is not the way to get the most bang for your hard earned buck. It ends up chewing up large amounts, if not all, of the amount that should have been exempt from taxes.

So, where is estate tax headed? As the article points out there are really 4 proposals on the table right now.

* Make permanent the 2011 exemption, in which estates under $1 million escape taxation and the top tax rate is 55%.

* Make permanent this year’s $3.5 million exemption and 45% tax rate.

* Index the $3.5 million exemption to inflation and cap the tax rate at 45%, which is President Barack Obama’s proposal.

* Raise the exemption to $5 million and cap the tax rate at 35%, as proposed by Sens. Blanche Lincoln, D-Ark., and Jon Kyl, R-Ariz.

At this time I think the third option is the appropriate continuation of where Congress wanted to go when they started this back in 2001. The scary thing is that we are looking a huge new expenses and ballooning deficits and it can be argued that option 1 is where the law stands now and given the need for cash, it should be left where it is.

So the answer for those with estates in excess of current exemption limits and even those with estates that could be impacted by a reduction of those exemptions should be planning. Life insurance still remains the most viable and cost effective means of protecting your estate and with there still being great values available with 2nd to die or survivorship life insurance polices using universal life no lapse guarantees, planning ahead for the worst case is not such a bad idea.

Bottom line. Estate taxes are not going away, so if that is your plan remember the critical component. You need to die next year. 2010 is your window of opportunity….unless Congress acts before or during that year. Prudent planning with an estate planner and attorney, coupled with an independent life insurance agent who knows where the best deals are hidden is the call to action.