Un-Taxing Times, Approximately



The federal estate tax, also dubbed the “death tax” by some, will be repealed for 2010, at least as of this writing.  This means that wealth transferred upon death, regardless of amount, will incur zero federal taxes.  Or, expressed differently, wealth transfers won’t incur egregious double federal taxation (once when the wealth is earned and once when it is transferred).

In contrast, the applicable exclusion to a taxable estate tax was $2.0 million for 2006-2008 and $3.5 million in 2009.  Amounts above these values had a maximum tax rate of 45% to 46%.  Nevertheless, to paraphrase Ben Franklin, there’s nothing certain except death and taxes.  In this case, there is a lot of uncertainty regarding the permanence of the 2010 federal estate tax repeal.  

The primary concern is that Congress might revisit the topic early 2010 and reinstate the tax retroactively to Jan. 1.  Regardless, under current legislation, the estate tax will reappear in 2011 with a 55% rate and $1.0 million exclusion.

There are many blogs about this topic: Die Broke Blog discusses estate taxes in a broader context; Mish’s Global Economic Trend Analysis addresses some personal unintended consequences; and, Wallet Pop highlights historical changes since 2001.

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