What’s Obama’s Estate Tax Move and How Should You Plan?

The Wall Street Journal recently reported that President-elect Obama plans to block any attempts from allowing the estate tax from disappearing in 2010. The estate tax credit amounts were raised to $3.5 million per person in 2009, meaning that individuals can pass that amount free of federal estate taxes, with amounts over that subject to 45% in tax. Any amounts passed to spouses are generally subject to the unlimited marital deduction and not subject to tax until the second spouse dies. Under the current regulations, estate taxes are set to be eliminated in 2010 then in 2011 they will return back  to 2002 levels of a $1 million exemption. Are you following all of this? Does this sound ridiculous and something only the government would come up with? Ok, so much for making life easy, what should you do? Glad you asked.

While we have to live with the current estate tax structure until it gets changed, which it likely will, it has been a running joke in the planning community for years. I highly doubt that estate taxes will disappear next year and I’m putting that in writing here so we’ll see if that turns out to be true. Mostly the humor has come from inside bets that we will see a wave of suspicious deaths leading up to December 31st 2010 which would be the last day of the free estate tax lunch. People will start writing their desire to have the plug pulled, but with the condition “only if the day falls before January 1st 2011 when the estate tax returns”. Enough joking around. What do you do? My advice is, you plan, regardless of what the tax limits are.

Everyone and especially their grandmother, have opinions on how much the tax should be and whether there should be one at all. Generally speaking, I believe that having an estate tax of some kind is a good thing. Before you hit me over the head, let me tell you why. Some people call the estate tax a “death tax”, some a “rich tax”, but personally, I like to call it a “dumb people tax”. Why dumb? Smart people hire folks to avoid paying estate taxes. Now even the smart people can wind up paying estate taxes but something magical happens in the process of working through the planning discussion; people begin to realize what’s important and how they would like to see their legacy handled after they are gone. With prudent planning, estate taxes can be minimized if not eliminated all together, but more importantly, people take an active role in deciding how they want their estate structured. Done properly, a well crafted estate plan can do more than save taxes, it becomes an instrument of control instructing those responsible for stewarding your life’s work when you are gone.

No matter what happens with Obama’s decision on the estate tax, it is worth sitting down with someone, whether it be your advisor, or estate attorney, to think through what’s important to you and make sure you have implemented the proper vehicles necessary to achieving what’s imporant to you. Saving some money on taxes wouldn’t be such a bad thing either…This conversation is one of the most important ones you can have. Don’t put it off.


1 Comment


One response to “What’s Obama’s Estate Tax Move and How Should You Plan?

  1. belicoso

    While I agree that it is probably the smartest course of action to sit down with an estate planning attorney and sort out your assets in a way that minimizes taxation, I would go further in saying that I do not think you should have to do this and that there should not be a death tax at all. I cannot approve of a system where individuals are taxed on their assets during their lives and then again after they die when they are in no position to stand up for themselves and the wealth that they created. From the standpoint of the survivors that the deceased earmarked for distribution of their property, it is a slap in the face for the government to get their share first. Not only do families have to put up with greedy and over-zealous relatives, channeling Anna Nicole Smith, who demand a larger portion of the estate and have no problem dragging their family through any number of courts to get their absurd claim to pay out, but they are forced to put up with the government’s insane double taxation? That is unbelievable.

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