New Year coming – new tax rules too?

We still don’t know what the laws will be on January 1, 2011.  However, you should remember there IS a tax law in place for January 1, 2011 and it is a one million dollar exemption.  Today there is no estate tax and January 1st there is a big tax (up to 55%) with only a one million dollar exemption.  Will a new law be agreed to this month?  I really don’t know.  I thought they would fix this tax loophole a few years ago.  What loophole do I speak of?  Let me explain.

Let’s say you are a 95 year old guy worth twenty million dollars.  If you die in late December your estate passes without any estate tax. There is the potential for some income tax, depending on what type of assets one owns at death but that capital gains tax is usually a pretty low tax rate (let’s call it 20% on some assets).  Now, if this same guy dies January 1st his estate will pay about ten MILLION in tax within 9 months of death.  Now, remember you are 95 so you lived through the depression, you still count your pennies even though you have twenty mil, and you are sick. If you die before January 1st there is no estate tax.  If you die January 1st, or after, your loved ones will pay a huge estate tax.  Hmmmmmmmm…..

How on earth did the politicians in DC come up with this idiotic law in 2002?   Well, who knows but they did.  They probably assumed a new law would be put into effect before January 1, 2011.  I know I assumed they would come up with a new law by 2005…. ok, 2006… ok, 2007… and each year I kept adding a year as I kept assuming the new law would be put into place to close the loophole in 2010.  They didn’t. We have already had several BILLIONAIRES die this year and their loved ones paid ZERO estate tax.  Sooooo, we approach the end of the year with a completely screwed up tax law situation.    Don’t let your loved ones be surprised if you die all of a sudden!

In any event, YOU should be talking to your estate planning attorney.  Be ready for the new year… and whatever law the feds come up with!

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