We had a reprieve from the estate tax altogether in 2010, and this was a welcome touch of tax relief that came about as a result of The Economic Growth and Tax Relief Reconciliation Act of 2001. However, the estate tax will return in 2011 and it is important to understand the consequences.
The estate tax as a concept is often assailed, and critics of this levy have quite a bit of ammunition. For one thing, the maximum rate of taxation for 2011 is going to be 55%. Plus, the exclusion for 2011 has been reduced to $1 million; it stood at $3.5 million in 2009. So even the “tax-the-rich” crowd needs to take a step back now, because you don’t have to be born with a silver spoon in your mouth to accumulate one million dollars worth of total assets throughout your lifetime.
The other portion of the argument against the estate tax is the contention that it is in essence a second tax on earned income. Most people pay their mortgages with a portion of their net earnings after taxes. The investment that they have made in their homes is an accumulation of their after-tax compensation. So the estate tax is can be seen as yet another levy on earnings that have already been taxed.
It should be noted that there is talk of a legislative action to amend the details of the 2011 estate tax. But as it stands, it is important to audit your assets in 2011 and engage in some advance planning with tax efficiency in mind if the value of your estate exceeds one million dollars. People who planned their estates a couple of years ago may have felt safe when the exemption was at least $2 million, but the changes that are scheduled to take effect in 2011 will impact a lot of people and proper preparation is key.