Taxation & Estate Planning

Opinions Differ Widely On Effect Of New Estate Tax Law

By michael

So now that we know what the numbers are in the long awaited tax compromise, its time to track whose happy and whose sad…  And as with most things legislativley related, its not a clear answer as it depends not only on what numbers you look at but how you look at them.

In the one corner we have the New York Times and their story, “Estate Tax Will Return Next Year, but Few Will Pay It.”

Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.

That sums up their persepective pretty well, but they do go on:

By one estimate, from Alan Rothschild, the chairman of the American Bar Association?s real property, trust and estate law section, less than one-half of 1 percent of people who die in 2011 will be hit by the estate tax. In contrast, 10.5 percent paid the estate tax in 1977.

And even for the very few who will be subject to the tax, the increase in the gift tax exemption will allow them to give their heirs tens of millions of dollars before the estate tax even comes into play.

So there’s some real numbers there right?  Hard facts, empirically verifiable data, the stuff good conclusions are based on right?  As it turns out though, the numbers are not so clear and it really is a matter of perspective:

In the other corner is a piece published today by Hans Sarji who writes Estate of Confusion called, “Report Finds That 65,000 Small Businesses And Farms Will Be Exposed To Estate Tax In 2011.” ‘But wait’, you say.  ’That’s a lot of small businesses and farms!’  So “less than one half of one percent” is a pretty big number then?

On December 30, 2010, the American Family Business Foundation (AFBF) published a report, by Antony Davis (Economist, Duquesne University, Mercatus Center): Cost of Compromise: Impact of the 2011-2012 Estate Tax (PDF).

[...] Here are the report?s key findings:

• Up to 67 percent of estates susceptible to paying the estate tax will include farm and small business assets;
• Up to 22,000 farms, 14,000 real estate partnerships, and 29,000 privately-held corporations will be susceptible to the tax in 2011;
• 170,000 total households will be susceptible to estate taxes in 2011;
• 8,500 households will owe estate taxes in 2011; and
• By 2048 (when today?s 20-year-olds reach retirement), half of U.S. households are projected to have sufficient assets to trigger the estate tax.

Mr. Davis concludes his report by arguing for the termination of the estate tax, so if the above wasn’t clear enough we now know for certain how he feels about this issue.

So, yeah, its tricky…   Less than one half of one percent is a small percentage but when applied to a population of 308 million you can still get some pretty big and - if you ken to Mr. Davis’ opinion – onerous numbers.

Full post as published by The Ohio Trust & Estate Blog on January 04, 2011 (boomark / email).