The Estate Tax of 2011 Explained

Most of America is not terribly concerned with estate tax for the simple reason that their estates, upon death, have little value. In some cases, it’s just easier to sign over property and other assets before death (as a one-time, non-taxable gift to children or grand-children) or simply avoid the issue entirely. After all, those with a modest estate won’t have to pay as much. The only people who are really worried about estate tax (by which a whopping 55% of amassed wealth valued at over $1 million will be seized by the government upon your death) are those who have a significant amount to lose. So when the death tax was repealed, a lot of rich people were very happy. Unfortunately, it was too good to last. As of January 1, 2011, estate tax will be back with a vengeance, probably as one of many stopgap measures intended to pare down our national debt (although even if the majority of America’s wealthiest citizens passed away, it would hardly put a dent in trillions of dollars owed worldwide by the United States).

Estate tax hikes started back in 2001, with gradual increases occurring along with commensurate reductions in income tax. You’ve probably heard about the end of Bush tax cuts (or maybe not, since Obama seems to be willing to let income tax cuts ride as a bargaining chip for extended unemployment benefits). But unless you number among the few who hold the lion’s share of wealth in this country, you likely had no idea that the death tax had been repealed this year. The problem is, with public programs gobbling up money left and right, the country mired in a recession, and now a hold placed on tax cut expirations, the government is looking at reaching a level of national debt from which they may be unable to recover in the foreseeable future. Simply put: they need money coming in. And apparently estate tax has become the port in a storm.

The question is: who should be concerned about this turn of events? The truth is, most of us haven’t got over a million dollars in estimated wealth, so we’re really not at risk for paying the monumental 55% required from the richest Americans. On the other hand, consider a scenario in which an elderly individual without much in the way of liquid assets owns a home that they have had for, say, the last 50 years. In that time, their property has increased in value significantly, to the point that it’s now worth just over a million dollars (despite the fact that they paid less than $50,000 for it originally). Upon death, whomever holds their estate will be on the hook for more than half of the value of that home (over half a million dollars, to be precise). And how many million dollar homes are selling in this economy? Close to none, would be a good guess. So the reappearance of estate tax could threaten a fair number of otherwise financially un-endowed citizens.

Pay attention, people: this means you! Of course, there are ways around this. Assets can be signed over before death, non-taxable gifts can be given ($1 million to kids and grand-kids, one time, and unlimited gifts up to $13,000 per year, per person), and living trusts can put wealth into the names of more than one individual. But even better is a plan that Obama is pushing for, which would roll exemptions back to 2009 levels ($3.5 million with a 45% tax rate for those that go over). However, such compromises have so far been blocked. Although media pundits seem confident that a resolution will be reached before the end of the year, that date is fast approaching with no compromise in sight. So if you’re one of the people who could be affected by estate tax at the turn of the year, there’s really only one solution to your problem. You’re simply going to have to stay alive long enough to see the tax laws change (or donate everything you can before you kick the bucket).

Sarah Danielson writes for Ask Deb, where you can find Olive Garden Coupons, Outback Steakhouse Coupons and tons of other great deals on your favorite eating and shopping establishments.