Death and Taxes?
Just when we thought we had federal estate taxes figured out, they have been repealed. Well, estate taxes are repealed for this year, anyway.
If someone dies during 2010, his or her heir will be receiving an inheritance tax free. This came about because the Senate failed to act on an estate tax proposal by the House of Representatives to keep the tax at its 2009 level. The proposal by the House also included a rate cap of 45% for estates worth more than $3.5 million. There is also no generation-skipping transfer tax, which was a way to avoid children having to pay estate tax by transferring the tax to their grandchildren.
Another change in 2010 estate taxes is a lower gift tax. An heir can receive up to $1 million without paying federal gift taxes. For gifts over $1 million, the gift tax is now 35%.
In a recent Star Ledger article about 2010 estate taxes, it was noted, “estate tax could be reinstated. Congress could do something this year, possibly retroactive to Jan. 1 and go back to the $3.5 million exclusion with a top rate of 45 percent on anything after that.”
Opponents to the estate tax debacle have said it’s unconstitutional to make the tax retroactive. The quicker that Congress can fix the estate tax dilemma, the better for everyone.
What This Means to You
Your estate will still have to pay state taxes. In any event, taxes can complicate any estate even if you do not have to pay them. The 2010 estate tax repeal may not affect you, but it brings up a valid reminder that everyone needs to have an estate plan. Update your documents, review your assets and ensure that your children’s needs are taken care of. In addition, do you have a durable power of attorney that can carry out your wishes? If not, see an estate-planning lawyer and get one.