The debate surrounding the legitimacy of the estate tax is rather one sided from a logical perspective. Those who are against it correctly assert that it is an exercise in double taxation. They also suggest that the rate, which has variably come in at between 35% and 55% during recent years, is extreme.
The argument in favor of the tax would appear to be far less substantive to some. It seems to revolve around the idea that we should “tax the rich.” Period. So there are those who are under the impression that they do not have to concern themselves with the estate tax because it is only levied on people of wealth. Many would question the fairness of this ideology, but the reality is that you don’t have to be extraordinarily wealthy to be exposed to the estate tax.
Right now the estate tax exclusion is $5 million, so only the portion of an estate that exceeds this amount is subject to the estate tax. But when the present tax relief act expires in 2013 this exclusion will go down to $1 million. There are over 8 million families in the United States that have a net worth that exceeds $1 million, so this will impact a lot of people. If you and your spouse worked hard all your life, bought property at the right time, invested wisely, and took advantage of opportunities that presented themselves you may well have accumulated assets in excess of $1 million without ever considering yourself rich.
The point is to make sure that you are aware of the overall value of your estate and not assume that you’re not exposed to the estate tax because you’re not a billionaire. The estate tax exclusion is constantly changing, and though you may hear about how it doesn’t affect you unless you are rich you may want to pay close attention because one person’s definition of rich may differ from that of another.