Estate Tax - Here or Gone?

Benjamin Franklin suggested that Death and Taxes are the only certainty in this world. What seems to be the difference still between the two, is that death is frequently painless. The deceased person who left us here (painlessly and peacefully hopefully), with lots of good memories, perhaps some gifts and inheritance even, also often left us with a great tax burden.

The deceased person Gross Estate, which includes all property that the deceased has, or has right to at the time of his/her death, is subject to tax. It seems a bit unfair to have a DECEASED person’s property taxed after his death, while that person already paid substantial amount of taxes during his/her life. However, whether you believe it or not, as with most tax laws, some logical policy Does exist. Estate Tax, a part of the unified Estate and Gift tax laws, comes to mitigate a potential class system whereby rich families get richer by transferring on wealth tax-free to future generations. Through the Estate Tax, we ensure that these future generations are "at least" as hard- working as we are in generating their wealth, and not just living "free" of previous generations’ untaxed inheritance. One can say it is simply a good incentive for our kids. And, as always, there is the other reason: Estate Taxes remains a large source of federal revenues.
In light of the fact that our government needs us Even After our death, it is important to know where are we standing now, and where are we heading too??

The Economic Growth and Tax Relief Reconciliation Act of 2001 revised the federal Estate and Gift Tax structure. In 2008, as has been since 2006 Only estates over $2 million are subject to Estate Tax, at a rate of 45%. In 2009 that amount goes up to exclude estates of up to $3.5 million. An Estate Tax Return, also known as an IRS Form 706, must be filed within 9 months from the decedent’s date-of-death, unless an extension is filed. The Estate Tax is paid from the assets of the estate, generally before any distributions are made to the beneficiaries and heirs. Thus, properly paying the estate tax requires identifying, gathering and valuing all the assets, filing of various forms, meeting deadlines, knowing the applicable tax laws and available benefits, and of course coming up with the funds to pay the tax if due.

Wow, so this seem pretty intricate, and the tax fairly hefty. Many Californians, specifically home, investment and business owners find themselves subject to the Estate tax. However, before one goes morn the loss of the person for yet another reason - ESTATE TAX, you should be aware that there Are ways to relieve the tax consequences. Careful planning and drafting of initial estate documents prior to one’s death, such as a Revocable Living Trust, QTIP Trust, and Charitable Trusts can maximize the benefits of the Unlimited Marital Deduction, Unified Credit, and Charitable Deduction. Even after death, consulting with a Tax Attorney can allow the estate to take advantage of the various deductions, exclusions, credits and exemptions available to reduce the estate tax.

Perhaps, the biggest break of all, the "Talk-of-The-Day", that Might be available in 2010, is the repeal of the Estate Tax for that one year. What?? did we hear correctly, Yes! However, before one plan to die in 2010, it should be noted that this benefit is not all that clear. Decedent’s properties that now enjoy a "Step-Up" basis to their fair-market-value at his/her date-of-death, will be subject to a "Carry Over" basis with some allowed modification instead. This means that any property YOU are to receive from the person who passed away, will carry in your hand the same value that the decedent had years ago. If you choose to turn around and sell that property the following day, you might have to pay a large sum of Income Tax. Moreover, it appears that in the current economic crises the Obama administration will work hard in the first few weeks to block the estate tax from disappearing. Some suggest that the administration will lock in the estate exemption rate at $3.5 million, while other believe that rate will revert back to the 2001 rate, of the $1 million exclusion amount. However, it appears that the 2001 rates, might cost an already struggling Treasury, billions of dollars. For that reason alone, the reversion might never happen.

Still, whatever the Estate Tax exemption rates might be, its worth hanging-around watching how this interesting topic will play out in the next several weeks/months. Happy New Year!