We have all had time to stop and think about the ramifications of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and a bit of distance always provides an altered perspective. Throughout the 2010 calendar year, during which the estate tax was repealed, the exclusion was scheduled to be just $1 million when the tax returned in 2011. The top rate of the tax was set at 55%, so as it stood the federal government was empowered to take more than half of any portion of your estate that exceeded one million dollars.
This is rather breathtaking, and there were many in Congress who were perfectly alright with this arrangement. They were adamant about how “unconscionable” it would be to allow “the rich” to transfer their assets to their loved ones after they pass away without that money being taxed by more than half. Because of this resistance and the stakes involved, the news that the new legislation would reduce the rate of the tax to 35% and increase the exclusion to $5 million seemed like a nice Christmas present.
But when you stop and consider the matter objectively rather than in comparison with the parameters that we would have been stuck with had no legislation been passed you see a different picture. Sure, we would all rather pay 35% than 55%, but the fact is that we shouldn’t be paying anything at all. The assets that comprise your estate are left over after you have paid what many would consider to be exorbitant taxes every step of the way throughout your life.
Plus, these after-tax resources can’t be taxed yet again simply because they exist while you are alive. But somehow the government feels that the event of your death allows them to assume ownership of 35% of the personal property you have bequeathed to your heirs. If your heirs try to pass along these assets to their heirs, once again a 35% federal levy will be imposed.
Yes, the reduction in the rate and the increase in the exclusion is better than what we were looking at before the new measure was passed. But any time you are faced with a 35% tax on money that has already been taxed it is hard to feel any true sense of relief.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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