Estate Taxes

Estate tax is due nine months after death. If a business owner dies owning the business, the business value is taxed as a part of the owner’s estate. A cardinal rule of estate planning is to avoid having a client die owning a business. From an estate tax point of view it is better to gift a business interest to heirs (often at substantial discounted value over time for a very low tax cost) than transfer a business at death.

Under the current estate tax law, following one year of repeal in 2010, the estate tax rate in 2011 will be 55% with $1 million in an estate exempted.

Ways and Means Committee Chairman Charles Rangel (D-NY) has announced that he intends to move separate legislation making permanent the 2009 estate tax rules: an exemption amount of $3.5 million and top tax rate of 45%.

Representative Shelley Berkley (D-NV) has introduced a bipartisan compromise estate tax bill that would begin with 2009 parameters and then phase in increases in the exemption and reductions in the rate. Under H.R. 3905, each year from 2010 through 2019, the estate tax applicable exclusion amount would increase by $150,000 and the top rate would decrease by 1 percent. The exemption would start at $3.5 million in 2009, and by 2019, the exemption and rate would be $5 million and 35 percent.

See the National Federation of Independent Business (NFIB) statement on H.R. 3905 (http://www.nfib.com/tabid/732/Default.aspx?cmsid=50097).

H.R. 3905 would be better than the current 2009 estate tax law (an exemption amount of $3.5 million and top tax rate of 45%) and prevent a reversion to an exemption amount of $1 million and top tax rate of 55% in 2011. Meanwhile, don’t depend on having a repeal of the estate tax starting in 2010.