The estate tax was repealed for the 2010 calendar year, and any form of tax relief is more than welcome for most Americans. However, in 2011 the estate tax will be back in effect, and it is carrying a very significant bite upon its return. The maximum rate will revert back to the level that it was at in 2001, which is a whopping 55%. The exclusion will return to the 2002 level of $1 million. To give you an idea of how this stacks up against more recent times, in 2009 the exemption was $3.5 million and the top rate was 45%, so the 2011 numbers are not a welcome sight for those who would prefer not to have their estates reduced by more taxes upon their passing.
There are those who would subscribe to the notion that you don’t have to worry about the estate tax unless you are wealthy. This would all depend on your definition of wealthy, and perhaps there was some truth to this when the exemption stood at $3.5 million. But now that the exclusion is going back down to $1 million, it is hard to say that estate tax concerns are confined to the well-to-do. If you combine the value of your house with all of your other assets you may find that you are at or near this $1 million mark even if you have never considered yourself to be wealthy.
It is a good idea to get out your calculator and take stock of your assets in light of the return of the estate tax and the vastly reduced exclusion amount. It would be devastating to your heirs to be faced with the prospect of paying the Internal Revenue Service more than half of what you have bequeathed to them. This is especially true if this levy could have been avoided with some intelligent advance planning.