A Responsible Estate Tax

In the face of record-breaking deficits, lawmakers are looking for ways to increase tax collections. And the estate tax is ripe for changes. Since January 1, 2010 the United States has been estate tax free, which means our government has already missed out on some big dollars when Texas billionaire Dan L. Duncan passed away this March. Not anxious to miss out on more money, Don’t Mess with Taxes writer, Kay Bell reports that two new estate tax bills are in play.

One bill, written by five senators, proposes a progressive estate tax structure. According to Senator Bernie Sanders, the bill’s sponsor, “99.7% of Americans would not pay any estate tax whatsoever.” The bill states:

• The first $3.5 million ($7 million for married couples) of an estate is exempt from federal taxation.
• Estates valued over $3.5 million and under $10 million would be taxed at 45%
• Estates valued over $10 million, but under $50 million would be taxed at 50%
• Estates valued over $50 million would be taxed at 55%
• Estates valued over $1 billion would have an additional 10% surtax

A popular argument holds that family farms are hurt by estate taxes, so this bill allows farmers to lower the value of their farmland by up to $3 million for estate tax purposes.

The second bill being discussed is a bi-partisan effort from two members of the Senate Finance Committee. While the bill has not been proposed yet, it reportedly includes a 35% top rate, and excludes any estate under $5 million ($10 million for couples). The bill may also include an incentivized pre-payment concept, wherein a person could pay a lower estate tax if they pay up before they pass on.

Read the full article here:

Senate Deal off on Estate Tax

We are currently without an estate tax and as 2010 continues, Congress is making little progress on fixing the tax law that created this situation. 2011 is just around the corner and if Congress does not pass new legislation soon, the estate tax will resurface at a much higher tax rate. Yesterday, Senate leaders stated that the estate tax proposal they had been considering fell apart. I guess it is back to the drawing board for Congress with regard to the estate tax.

As blogger Vicki Needham explains, the Senate Minority Whip Jon Kyl (R-Ariz.) said the accord, which was all but forged a week ago, began to dissolve Monday night and broke down Tuesday.

After talks with Senate Finance Chairman Max Baucus (D-Mont.) and Senate Minority Leader Mitch McConnell (R-Ky.), scrapped a plan to move forward with the tax that expired at the end of 2009.

The reasoning, Kyl said, is that Senate Democrats aren't allowing any legislation to reach the floor that doesn't have support from the majority of its members.

"We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they're not going to allow it on the floor, at least not voluntarily," he said. "So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it."

Continued at The Hill.com…

No Federal Estate Tax, but What About your State?

Everyone is talking about the lack of a Federal estate tax this year, but as this New York Times article points out, there are still 20 states that levy a local estate tax. It explains how state estate taxes can complicate the process of dealing with a recently deceased family member’s finances, and provides advice on how to plan for local estate taxes.

The first quarter is nearly over, and the federal government has made no move to reinstitute the estate tax. So dying today seems free, right?

There is just one problem: If you live in one of 20 states with a state estate tax, you could find your existing estate tax plans causing more harm than good.

State estate taxes are not new. They had just been a secondary element in the course of figuring out the much higher federal estate tax.

Now, the issue is sorting through wills written to maximize the old federal exemption from estate taxes — $3.5 million in 2009. In states with their own estate taxes, some of these provisions could distribute money and incur taxes in ways the deceased never expected — or maybe not if the federal estate tax is reinstated. As Jerry Weihs, director of advanced planning at Sun Life Financial, said: “We’re in a state of ambiguity.”

AUTOMATIC MISTAKES

The biggest issue with the state estate taxes is wills that contain so-called formula clauses. Many wills were redrafted in the last decade to take into account the increasing federal estate tax exemption. Instead of rewriting the will every few years, clauses were put in to reflect the rising exemption amount.

Continue reading at NY Times…