By dying in 2010, George Steinbrenner’s estate dodged a $600 Million dollar bullet. Or for you visual thinkers, if you lined up every dollar lengthwise and back-to-back that George Steinbrenner’s estate will not owe in estate taxes due to dying in 2010, the line of dollar bills could travel around the earth two times! (58,143 miles long, to be exact). Now, I don’t usually get political on this blog, but with a 1.4 trillion dollar budget deficit, can we really say our elected officials in congress are acting financially prudent when they’ve let 7 months go by in the 2010 year without collecting any estate taxes? You’ve heard it said every dollar counts, right? Well, what about losing out on a $600 Million dollar payday?
I’ve written extensively about estate taxes and using life insurance to pay estate taxes. However, this year, 2010, there are no estate taxes due to a law congress passed in 2001, which stepped up the estate tax credit annually until 2009, when the law was to sunset. The plan was for there to be no estate taxes in 2010 and then return to the $1 Million dollar tax-free estate in 2011, with every dollar over $1 Million being taxed at 55%. I guess the lawmakers figured 9 years would be long enough to fix the bonehead idea of there being no estate taxes in 2010, but we all know what happened, and how busy congress has been the past year… and long story short, it never got done, and people with estates in excess of $1 million dollars have been dying for the past 7 months, owing nothing in federal estate taxes.
Had George Steinbrenner passed away on January 1st of 2011, roughly his entire estate would have been taxed at 55% (minus the one million excluded amount). A Forbes article recently estimated his net worth at $1.1 billion. Multiply that by 55% and you come up with the $600 Million of missed tax revenue.
So what’s the latest news on the estate tax reform? I saw on Fox News yesterday that we now have bipartisan support in the senate for a bill supported by Blanche -AR, and Jon Kyl of AZ to implement a plan to get the total excluded estate up to $5 Million with a top tax rate of 35% thereafter. But then there are others who argue that our government needs the tax revenue, and that if the excluded amount were to stay at $1 Million, it would generate some much needed income.
Planning for your estate – The most prudent advise I can give is to plan for the way the law currently is, and prepare for only being able to transfer $1 Million dollars tax-free to your heirs next year. For affluent individuals in excess of $1 Million, you need to plan for how you’ll pay 55 cents on the dollar thereafter in tax. Will it be out of cash from your estate? Then be sure your estate has proper liquidity. Your estate has 9 months from the date of death to pay estate taxes, so if your estate is tied up in property or business holdings, you’ll need adequate cash to be able to cut a check to Uncle Sam.
Life insurance is an excellent way to give your estate liquidity, and to pay estate taxes for pennies on the dollar. You can also own it in a trust, so as to remove the insurance proceeds from your taxable estate. To calculate your insurance need, simply multiply your net worth which excludes $1 Million by 55%. That’s your approximate tax bill without any estate planning. This is a simple calculation to get you started. With the use of trusts, gifting, and other estate planning strategies that discount your net worth, the calculation above may need to be adjusted, depending on the level of planning you have undertaken. If you need help calculating your taxable estate, I’m happy to help. 877-443-9467
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