As the new year approaches the return of the estate tax is a matter of great interest in the realm of estate planning. It was repealed for 2010 after having been levied every year since it was enacted in 1916, but this was just a one year repeal. When you look around, you notice that life was gone on as usual without the tax, so it would seem as though we can get by without it just fine. Indeed, many people would support the suggestion that we simply do away with the estate tax permanently.
Let’s look at the facts. Most people acquire the assets that they have in their estates through saving and investing money that they earned after taxes. Plus, you pay property tax, capital gains tax, sales tax, and taxes on things like gasoline, tobacco products and alcohol. In short, as you go through life you are taxed at every turn, and the better you do, the more you are punished by the tax man. Then when you have been taxed to death, your heirs have to pay yet another tax.
Which leads us to the next point of contention. Not only are your heirs taxed, but they are taxed at an exceedingly draconian rate. The top rate of estate taxation in 2011 is scheduled to be 55%. After paying all of the taxes touched upon above throughout your life, what is the logic supporting a federal levy that will take more than half of what’s left when you pass on?
The last thing we would like to touch on is the selective nature of the estate tax. The exclusion amount varies from year to year; in 2011 it will be $1 million. So if you die in 2011 with $3 million in assets your heirs will pay 55% estate tax on $2 million. The government will get $1.1 million of your money, and your heirs will get $1.9 million. But the heirs of the person down the street who had assets of $1 million pay nothing at all.
We all pay plenty of taxes when we are alive. The assets in your estate got there after being taxed along the way. There is no logical reason why the tax man should be able to chop what’s left in half as you try to pass your legacy along to your heirs.
- How Will You Age in Place and Be Able to Die at Home? - August 16, 2020
- Beneficiary Designations and Other Non-Probate Transfers - August 15, 2020
- Leaving Assets Can Be Tricky – Part 3 - August 13, 2020