It is a rare occassion that a question doesn't arise about estate taxes. Some remember the days of Michigan's inheritance tax - some worry about "$600,000!" - some have heard of the supposed upcoming repeal of estate taxes entirely and others have been utterly confused by the stepladder increases in the amount that can be passed estate-tax free - currently set in 2009 at 3.5 million per individual.
What can we expect from President Obama on this issue?
I happened upon an interesting Wall Street Journal article this morning that appeared to be directly on point. It appears the Obama administration's current plans call for a freeze of the amount that can be passed tax free at the current level which is $3.5 million. In other words, not repealing the estate tax, but maintaining the amount that can be excluded from estates at an amount high enough so as to keep most of us relatively safe from is its grasp.
Would this be a good thing or a bad thing? Depends upon who you ask, I suppose. Probably a great number of my clients will be relieved to finally have a concrete answer about what will occur so that they can plan accordingly - although it does not appear the plans have yet been set in stone - so don't take any action based upon these reports as of yet.
Here's what it might mean to you:
- With proper planning, a married couple may be able to pass $7 million estate tax free.
- An individual may be able to pass $3.5 million estate tax free.
- According to the Wall Street Journal, all but the largest estates would escape the tax - with less than 2% of annual deaths being effected.
An unfortunate casualty might be the loss of charitable donations from wealthy individuals who traditionally used charitable deductions to avoid or reduce the tax. According to Philanthropy Today fund raisers are worried that estate tax changes will mean less charitable donations from those who may have otherwise been subject to estate tax. With the current scheduled return to the $1 million exclusion in 2011, a greater number of individuals may find charitable giving an attractive option - while a complete repeal of the estate tax may do tremendous damage to the nonprofit world.
We're left wondering how Michigan's estate tax scheme, currently tied to the federal estate tax, may or may not change - as well as what, if anything, may happen to the "stepped-up" basis we currently receive on inherited property.Certainly an issue that needs to be followed closely over the coming months.