If you have a sizable estate then I’m sure you’re more than aware of the sunset provision of the estate tax that expires at the end of this year. What does that mean? In simple terms, you have the potential to pay a whole lot more of tax to the IRS than you would have. A whole lot more. To get a better handle on what this means to you, I interviewed Tiffanny Sievers of SI Elder Law to get her take on the situation. First let’s look at what the inheritance tax really is.

What is the Estate Tax?

According to Wikipedia, an inheritance tax (also known as an estate tax or death duty) is a tax which arises on the death of an individual. It is a tax on the estate, or total value of the money and property, of a person who has died. Many aren’t affected by this, but for those that are; they can pay a hefty chunk if do some strategic estate planning to take care of it.

What do I think of the estate tax and how am I advising my clients in June of 2010?

First of all, I have no idea what they were thinking 9 years ago putting the sunset provision in to the new law. Now, with our government going broke, the only politically correct thing to do is tax the rich. Well, how to be rich is becoming a relative term with inflation moving as fast as it has been in the last few months.

Secondly, the end of my year is going to be really busy. Why? I am telling my clients that have between $1 and $3 million to wait until October to make any altering decisions. Right now, it won’t hurt anyone to procrastinate until the end of the year because there is no death tax this year. However, in October if it is clear that Congress is not going to be changing the estate tax from $1 million to $3.5 or $5 million then people need to protect their assets over $1 million. Unless the clients are now expressing some capacity issues in which case they must now plan for the worst.

Third, the actual amount of the tax is going up. In 2009 you were taxed 45% of everything that you died with over $3.5 million. In 2011 you will be taxed 55% of everything that you have over $1 million.

Who is this really going to hurt?

Farmers. I had a farmer come in to my office today and say that they had $50,000 in the bank and 455 acres of land that has a value of $2,300 an acre. This means that they have assets over $1 million and they will have to pay all of the cash assets to Uncle Sam at their death. However, the farm made $23,000 in income last year for the owners. That is not much compared to the amount that they will have to pay in taxes at their death. Fortunately, this family came to me in time for me to be aware of their situation and put them on my Estate Tax Watch List.

What are you doing to prepare for this?

I have an Estate Tax Watch List that has the names of all of my clients that I need to contact in October and make appointments to change their estate plans should the estate tax stay at $1 million.

What should you do?

If you think that you may be affected by the estate tax, I suggest you meet with a qualified estate attorney to assist you in your efforts. I tell all my clients that I don’t mind paying the IRS what they owe, I do mind paying them more than I have to. Especially if I can do something about it.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Creative Commons License photo credit: kevindooley


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