Simply stated, your estate is the value of all the assets you own when you die.  And of course for decades now, the U.S. Government has been levying a tax on those assets. This year, the U.S. Congress has been discussing the revision of the Federal Estate Tax as part of their efforts to arrive at a final budget for the upcoming fiscal year.
Whether Democrat or Republican, both sides of the aisle are pushing to reach a compromise solution before the end of 2010.  Because of complicated rules going back to the 2001 tax-cut act, the estate tax rates at which Americans are taxed is wildly inconsistent. The estate tax rate for people dying in 2010 is presently zero. If your going to pass away, and you don’t want the government getting any of your accumulated estate, then 2010 is your year. You get a free pass. But then the rate jumps back up to a whopping 55% the following year in 2011 and thereafter. For every $100 dollars you die with, the federal government will grab $55 and leave your estate with only $45. Â
Republicans generally like the 2010 rule; it rewards financial success and reinforces the American dream. Democrats prefer the 2011 tax rates; they feel entitled to slice off a big chunk of your financial legacy and redistribute it to others of their choosing. Elected officials on the left see an increased estate tax as a potential way to drum up significant tax revenues that can be spent on their favorite social programs. Folks on the right see an increased estate tax rate as an unfair double taxation (taxed when you earned it; taxed again when you die) that penalizes hard working and successful people who are trying to build a financial legacy which they can pass down to their children and families.
The problem I have with the estate tax is that it tends to vilify financially successful Americans by singling them out to pay a tax that other citizens with less assets aren’t asked to pay. It seems fundamentally unfair to punish someone just because they are smart, successful, hardworking or just plain more lucky than the next guy or gal. We all pay sales tax, income tax, and property tax; but only the successful Americans get gouged with an additional estate tax.  In my opinion the estate tax is fundamentally unfair and smacks of class jealousy.
What’s more, from a purely economic point of view, the federal estate tax actually discourages savings and investment in America’s future. It sends the wrong message to America’s entrepreneurs, investors, small business owners and farmers. It tells them, “if you spend your money as quickly as possible while your living”, then the government won’t tax your estate when you die.” But if you behave responsibly, and save and invest in your family and America’s future, and build up a nice sizable estate to show for your efforts, when you die, the feds are going to rush in a grab a large chunk of your life’s legacy away from your surviving family members. That is just so wrong.
There are also statistics that show that the estate tax is a job killer in America, but I’ll save that discussion for another time. Nations as diverse and different as Australia, Russia and Sweden have done away with the estate tax as an unfair levy. Give me a dollar, I’ll grow it into five. Give the government a dollar, they will quickly spend it and then stick out their empty hand demanding more.
An effective Estate Plan can help you minimize your estate tax liabilities and allow you to pass on more of your estate to the people most important to you. Control what is yours. Protect your family’s legacy. Call our office today to schedule an estate planning consultation.