Retirement Guys: Yankees (Steinbrenner) beat Red Sox (estate tax)
Written by Nolan Baker Mark Clair | | letters@toledofreepress.comIs there ever a good time to have a family member pass away? If the goal is to leave less to your least favorite relative, Uncle Sam, and your family has a boatload of money, perhaps 2010 is it. George Steinbrenner passed away recently and under the current law, by passing away in 2010 it appears that his estate will not have to pay as much as $600 million in federal estate taxes. His baseball team, the New York Yankees, made it a habit to beat its rivals, the Boston Red Sox, and it looks like George has beaten the taxman, too.
The way the federal estate tax works is that there is a number the government establishes that every dollar exceeding this number is taxed. Years ago the magic number was $600,000. Then it went up to $750,000 and then $1 million and then $2 million and finally
$3.5 million. In the past, the tax on every dollar over these break points went as high as 45 percent. Under previous tax law changes, the estate tax was repealed in 2010. So the best year to die from a tax standpoint is obviously 2010.
The question going forward is what will happen with the estate tax and how will it affect the typical family. The legislators were to address this issue, but have not gotten around to getting it done so far. Because of Steinbrenner’s recent death, the activity on addressing this issue may be heating up.
On July 15, Rep. Linda Sanchez (D-Calif.) has introduced “The Responsible Estate Tax Act.” This bill would reinstate on a retroactive basis the estate tax to Jan. 1, 2010. It would keep the exemption amount of $3.5 million, but would make the tax progressive from 45 percent up to 55 percent, depending on the size of the estate. It would also impose a surtax of 10 percent on estates over $500 million. This would not be good news for the Steinbrenner family if they make this tax retroactive to 2010. Some commentators think that making the tax retroactive is unlikely because of how long they have let it go without addressing it. Also, very wealthy families will have the financial resources to fight it legally if necessary. If the government was going to make this retroactive, they probably should have done so by now.
In discussions about reinstating the law there has also been talk of making the break point on the tax $1 million. If this happens, it would affect many families. It is not that uncommon these days that the hard-working family may have accumulated more than a million dollars and not even realize it. When they start adding up the values of their retirement accounts, real estate, money in the bank, investments, etc., getting to that number is not far-fetched these days. If a tax was put in effect that taxed every dollar above $1 million at 45 percent, this could be a chunk a change that many families would have to send to Uncle Sam. It will be interesting to see what the government will do in light of all the spending that is being done.
What the average citizen can do to prepare for the possible effects of this is to establish a good estate plan. Whatever the estate tax exemption ends up being, there are planning techniques that can possibly double the amount of estate tax savings.
Get with a good estate planning attorney to explore your options. A plan can be put in place to address many issues created by whatever the law ends up being. We’ll see what happens. In the meantime, get your planning done right away.
For information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit www.retirementguysradio.com. Securities are offered through NEXT Financial Group Inc., Member FINRA / SIPC. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. NEXT Financial Group, Inc. nor its representatives provide tax or legal advice.
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