More and more it looks like there will be no estate tax for 2010.
This surprises many experts. (These may be the same people that told you Congress would continue the Bush tax cuts.)
In the United States, the estate rate in recent years was 45 percent, with an exemption for the first $2 million. In 2009, however, the exemption jumped to $3.5 million, which meant that the heirs of a rich, dying parent had about 1.5 million additional reasons to console themselves if said parent died on the first day of 2009 rather than the last day of 2008. With this incentive, it’s not hard to imagine such heirs giving their parent the best medical care money could buy, at least through the end of the year. Indeed, two Australian scholars found that when their nation abolished its inheritance tax in 1979, a disproportionately high number of people died in the week after the elimination of the tax as compared with the week before.
George's heirs say, "Thumbs up to no estate taxes."
If the tax is suspended for a year, a parent worth $100 million who died in 2010 could have passed along all $100 million to his or her heirs. But, with a scheduled resumption of the tax in 2011, such heirs would have surrendered more than $40 million if their parent had the back luck to die even one day too late. It is reported that George Steinbrenner’s heirs will save $600 million in taxes if no estate tax law is passed for 2010. Perhaps the bickering politicians may decide to smooth out the tax law if they realize how many assisted suicides they may be responsible for during the waning weeks of 2010.
If Congress doesn’t change the law soon, and many think that in this highly partisan election year it will not, the estate tax will come roaring back in 2011. Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers. Consider these examples: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.
Are estate taxes dead in 2010?
Advisers say the estate-tax dilemma is especially awkward for heirs. Heirs may be tempted to pull plugs on December 31. Economists might call the taking of a life to reap a tax advantage a “perverse incentive.” District attorneys might call it homicide.