Estate Tax: Spin The Wheel Of Chance
They say that death and taxes are the two sure things, but who is to say that they should walk hand in hand? Critics like to call the estate tax the “death tax,” and the label is more an accurate description than it is a mere sarcastic flippancy. When you think about it, the assets that comprise your estate are all sitting there nice and safe while you are alive, but after you pass away and your heirs are set to inherit them they are somehow subject to taxation. Plus you have to remember that you acquired your assets with the funds that you had left over after you paid income tax. So from the start the estate tax is levied against funds that were already taxed.
The above is part of the formidable rap against the estate tax, but the aspect that we want to highlight here is the random nature of the tax. There are two things to consider: the top rate of the tax, and the exclusion amount. These vary year by year resulting in a lottery of sorts. For example, the exclusion amount in 2008 was $2 million, and in 2009 it was $3.5 million. So if Denise was to pass away on December 31st, 2008 with an estate valued at $3.5 million, her heirs were presented with a tax bill by the IRS in the amount of $675,000. Now if her neighbor Cy died the next day with an estate valued at that same amount, $3.5 million, his family would pay no estate tax at all.
In 2010 the estate tax was repealed altogether for just that one year, so the heirs of former Yankee owner George Steinbrenner, who died with an estate worth over one billion in the summer of 2010 paid zero estate tax. But Denise’s family had to pay $675,000 back in ’08 on a $3.5 million estate, more that 300 times less than the Steinbrenner fortune. To take it one last step, if Lucille passes on 2011 when the exclusion will be $1 million and the top rate 55% with an estate valued at $3.5 million like Denise and Cy, her heirs will owe the IRS $1.375 million. So on a $3.5 million estate Denise’s heirs paid $675,000, Cy’s heirs paid nothing, and Lucille’s heirs will pay $1.375 million, all within four years.
Step right up, ladies and gentleman, and play the strange game of chance that the federal government calls the estate tax.
