Recently, John Raese, a billionaire using his own riches to try to win a US Senate seat in West Virginia, declared “I made my money the old-fashioned way — I inherited it.”
Lucky him. This year, 2010, is the best year to inherit money, because there are no US taxes on inheritance. Unless Congress acts, next year will be an entirely different story.
Next year if you die with over one million dollars, and that includes life insurance, your estate will be taxed. Without any estate planning, the amount over one million dollars will be taxed at 41-55%. Being dead, this may not be a concern of yours, but your children will be somewhat less able to make the same claim as John Raese did.
Even with the recent fall of real estate values, it is very common for people to have over one million dollars at death, especially when considering life insurance. Take a look at what you have: house, cars, IRA/401k’s, savings, and insurance. As people come into my office and I discuss this, it surprises many of them to discover that they will be millionaires at death, and subject to the Estate Tax in 2011.
There has been discussion of ending the estate tax, but I do not expect that to happen. My belief is that in our current situation, we need an estate tax in this country. The accumulation of incredible wealth by a very few, as well as the mounting federal deficit, warrant a federal estate tax. Our income tax policy since the 2001 tax cuts has been too generous to the super wealthy. In 2007, the top 1 percent of American earners received 23.5% of the nation’s pretax income. This is about two and a half times the 9 percent that brought in that much in 1976. Clearly wealth is accumulating at the top. Unfortunately, during the Bush years 2002-2007 the median income for non-elderly American households went down and the poverty rate rose.
Having an estate tax acts as a buffer on the over-concentration of wealth. The question is, at what level? One million dollars ain’t what it used to be, and the million dollar exemption in 2011 is too low, and will affect too many families. In 2009 the first 3.5 million was exempt, which meant that with proper estate tax planning, a couple could shelter 7 million dollars, which is a nice inheritance to receive tax free. Probably this is a good place to start.
The way things stand, there are many families who should be looking at their estates, and thinking about having a review to determine whether they will be affected by the Estate tax. Ohio has an estate tax, but because its tax rate maxes out at 7%, it is not as much of a concern. However, good trust planning can still save children over $20,000 in taxes if trust planning is done between spouses.
This year is coming to an end, and its a good time to take a look at your current assets, and to decide whether its time to have an attorney review your estate plan. Please call us if you would like to sit down with us for a review.