Analysis: With Congress, death and taxes no sure thing

NEW YORK Fri Aug 6, 2010 3:23pm EDT

NEW YORK (Reuters) - Ben Franklin observed that nothing can be said to be certain except death and taxes. Thanks to Congress, you can strike taxes from that short list.

Political stalemate has made 2010 the year without an estate tax, which means multimillionaires who died this year can pass on all their wealth without paying a penny to Uncle Sam.

Yet the odds of Congress reinstating the tax this year, while increasingly slim, are putting windfalls on hold.

"People act like a deer in headlights. They don't know what to do in view of the uncertainty," said Jeremiah "Jere" Doyle, a senior vice president at BNY Mellon Wealth Management.

The deaths of Texas pipeline billionaire Dan Duncan, New York Yankees owner George Steinbrenner and other immensely wealthy people this year drew attention to a gigantic hole in the U.S. tax net: no levy on multimillion-dollar estates for the first time since Teddy Roosevelt was in office.

A package of 2001 and 2003 Bush tax cuts expire this year and have not yet been replaced. The estate tax, which fell to 45 percent on assets over $3.5 million for individuals, disappeared this year.

The House last year approved a bill that would have extended the tax at the 2009 rate, but the Senate has failed to pass its own bill.

If Congress does nothing this year -- more likely with each passing week -- the estate tax rate will jump to 55 percent with a $1 million exemption.

"This might be the best year to die of all time, though that remains to be seen," mused Steven Lavner, a senior vice president in U.S. Trust's national wealth strategies group.


A contentious issue in any environment, the estate tax has proven to be especially ticklish during a recession leaving one in 10 Americans unemployed and the deficit soaring. Advocates for the tax say it is the most progressive revenue source out there, affecting about one-fourth of 1 percent of taxpayers.

Farm and small business owners meanwhile have lobbied against the levy, calling it a "death tax" and unfair.

Last month, independent Senator Bernie Sanders co-sponsored a bill that would impose taxes of 55 percent and as high as 65 percent, with a $3.5 million exemption. The Sander bill would make the tax effective to the beginning of 2010.

On the other side of the spectrum, a bipartisan bill from Senators Blanche Lincoln and Jon Kyl would set a 35 percent rate with a higher $5 million exemption.

Early this year, financial planners said it was unthinkable Congress would not reinstate the tax this year.

Today, tax experts say they would be surprised to see lawmakers, who just commenced a six-week recess and who have elections looming in November, enact a new tax this year.

"We're past the midpoint of the year. It's looking less likely that there will be a retroactive tax," Lavner said.

Wilmington Trust estate planning expert Carol Kroch said many estates are putting off distributions until later this year, given the uncertainty.

"We don't really know what's going to happen," she said,

Estates may still pay out some assets but keep at least 55 percent in reserve in case Congress does act.

Bill Fleming, a PricewaterhouseCoopers financial planner in Hartford, Connecticut, said likewise families should be prepared for any scenario.

"We're telling people to plan as if the estate tax is coming back," Fleming said. "They ought to be doing the things they'd normally do: set up family partnerships and trusts. Keep gifting."

(Editing by Gary Hill)

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Comments (7)
Wmsaupe wrote:
This “death tax” is a problem with people that don’t have there estates properly planned. One way to avoid this tax is to protect all your property in a trust or placing it in an LLC.
Taxes inevitably all trickle down from one fact. It is on how much you make. The tax rate however in the US is progressive, increasing the amount of tax by how much you make.
So step one: produce something of value and make money.
step two: pay taxes on that money to your established government.
step three: spend you earned income on something you like. A house, a car, a trailer to pull behind your car, maybe some land and an ATV to drive on that land.
step four: pay taxes on those purchases.
step five: pay taxes on the things you own every year. Take a car for example it’s been built by a craftsman that loves automobiles and loves driving on state built roads(paid for by taxes on petrol, good job, too bad the roads drive like rubbish)The company that builds that automobile buys loads of product from other manufactures to build their product and pay taxes. They pay employees who pay taxes so I can buy a car to bring home so can park it in my garage and pay more taxes on it just for sitting there.

Aug 07, 2010 10:53am EDT  --  Report as abuse
STORYBURNhere wrote:
Estate taxes are going through the roof in 2011. Starting at $1 million

Aug 07, 2010 11:54am EDT  --  Report as abuse
doctorjay317 wrote:
What’s the rationale behind the death tax anyway. Didn’t your grandpa or papa supposedly paid all his taxes already? Why does tax have to be paid agian when he passes it on?. Is that called double taxation? Somebody explain this to me.

Aug 07, 2010 2:30pm EDT  --  Report as abuse
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