Estate Taxes Will Continue To Be An Issue

A recent article in the Wall Street Journal provided an in depth look at the history of the development of the estate tax in the U.S. as it currently stands.  Although the Republican and Democrat supporters of the repeal of the federal estate tax had managed to pass a law phasing out and ultimately repealing the estate tax, their efforts seem to nevertheless be on the rocks today with the incoming Obama administration and decidedly fiscally liberal majority in congress. 

What does this mean to each of us?  Put simply, if you die in 2009, and the amount of property you own exceeds $3.5 million, and you've not done any estate planning designed to minimize or eliminate the need to pay this tax, you will pay approximately 45% of that amount (the amount exceeding 3.5 mil.) to the federal government.  In other words, the executor or administrator of your estate will pay that to the government before they distribute the rest to your beneficiaries/heirs. 

If you die in 2010, the applicable exclusion amount is unlimited.  There will be no estate taxes due regarless of how much you own if you die in 2010.  However, as the above referenced article points out, there's a good chance that Congress will change the law before then to reinstate an estate tax of some sort for 2010 and beyond.  As the law currently stands, in 2011 the applicable exemption amount drops back down to $1 million per person with an up to 55% estate tax rate. 

So what can we make from all of this craziness with the estate tax laws?  I think it's safe to say that nobody knows what's going to happen.  And when you factor in the massive government bailouts of recent months and the great need that the federal government will soon have to fund those bailouts, the estate tax will certainly be a target for some lawmakers. 

What each of us can take away from this discussion is simply this: any estate plan must take into account changes in the law that have occured or will occur in the future.  If you are having an estate plan drafted, make sure that your attorney makes it flexible enough to deal with these types of changes.  If you already have an estate plan and it hasn't been reviewed for a few years, pay the little extra money to make sure it still takes into account your unique circumstances and the changes in the law.  You can't afford not to.