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POISED FOR A COMEBACK?
Posted in Estate Planning

"The reports of my death are greatly exaggerated" – Mark Twain 2010 has brought us the revival of 1960s fashion and Betty White’s career. Not bad as comebacks go. While my hopes for the next great comeback involve a Led Zeppelin concert and a Schlitz (a little pep in the stock market wouldn’t hurt either), I’m afraid that’s not in the cards. No, the strongest contender for a comeback in the next few months may be the federal estate tax because, unless something changes, we’ll be partyingplanning like it’s 2002. Can we get that Schlitz now? Okay, so it’s not a done deal – Congress still has a few days left on its legislative calendar in 2010, which they could use to change the estate tax rules. But the odds for a change before year-end are growing longer with each passing day, especially as we head into election season. If you care to think about the federal estate tax (and you surely have far more interesting things to think about), you may be asking yourself these questions.

  • “Didn’t the estate tax go away already?”
  • “Estate tax? Meh. Why do I care? I’m not rich”
  • “I already have a Will, so I’m good, right?”

  Good questions all. Let’s answer them. Q:  “Didn’t the estate tax go away already?” A:  No, not if you’ll be alive in 2011. Very briefly, 2010 estates – like that of the late New York Yankees owner George Steinbrenner – will pay no federal estate tax, unless the estate tax law is changed retroactively. (For more on the tax situation for 2010 estates and how to take advantage of the 2010 law for your estate planning click here.) Unless Congress acts, all of that changes on January 1, 2011 when:

  • Estates worth as little as $1 million will be subject to tax. Among other things, the value of your home, your retirement accounts and the death benefit of any life insurance proceeds may “count” toward this $1 million amount.
  • The government takes 41 cents on the first dollar in excess of that $1 million.
  • Tax rates steadily increase from 41 percent to 55 percent on larger amounts (with a 5 percent surcharge on the amount by which the estate exceeds $10 million).

  Q: “Estate tax? Meh. Why do I care? I’m not rich” A:Is that really a question? To reiterate:

  • Estates worth as little as $1 million will be subject to tax. Among other things, the value of your home, your retirement accounts and the death benefit of any life insurance proceeds may “count” toward this $1 million amount.

  In a broad sense, the estate tax is a tax on all of your wealth. Items that you may not really think of when you consider your personal wealth include life insurance on your own life (which you own in your own name) and 401(k)’s, IRAs and other retirement plans and ownership interests in a business. A lot of assets you can’t (easily) spend are subject to estate tax. Q: “I already have a Will, so I’m good, right?” A: It depends. Many Wills (and revocable trusts) were written at a time when estate tax exemptions were greater than $1 million and estate tax rates were lower. (The last time there was a $1 million exemption was 2002). Wills developed assuming a higher exemption and lower rates could be bad news when the exemptions go down and the rates go up. All in all, this would be a good time for a review of your will. And a Schlitz. For more information, contact the Estate Planning Practice Group at Bingham Greenebaum Doll.

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