Congress has not passed new estate tax legislation, meaning it is scheduled to return at unfavorable rates in 2011. There is still time for Congress to change things, but it is making things difficult for people to plan their estates.
Return to the old rates?
If Congress does not pass new legislation, the estate tax will return to its rates from 10 years ago; almost every analyst agrees, that is not a good thing. Under the old (and possibly returning) rates, $1 million is exempt, and the tax on the remainder is 55% (60% in a certain phase-out range).
Including a house, many families could be close to the $1 million dollar threshold than they think.
The price of wealth
The upside is that leaving property to a spouse or charity is not subject to the estate tax. The downside, however, is that inheritances that pass to children are subject to the tax.
For example, you are married and have two wonderful kids. You suddenly pass away, and everything you own passes to your spouse and is not subject to the estate tax. The value of everything passed onto your wife is $1.5 million. Suddenly your wife passes away, and the total value of her assets (including yours) was $1.8 million.
The first million is exempt, but the remainder of $800,000 is subject to the old estate tax rate of 55%.
How to deal with the uncertain estate tax
To be on the safe side, contact a local attorney to ensure your estate plan is properly worded so as to not create unintended problems in a year without an estate tax.
(photo: AMagill)
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Randall Ryder is consumer rights attorney in Minnesota, where he suesabusive debt collectors and is a publisher of Elder Parent Help.