So how much did the failure of Pelosi and her Democrats to plug the 2010 estate tax loophole cost us?
At first glance, the failure of Congress to plug the 2010 estate tax loophole appears to be good news for children of ailing rich parents — and of little consequence to everyone else. But in fact, by letting the tax lapse, Congress has created a bunch of unintended consequences and increased the chances that you will owe taxes on an inheritance. Yes, the perverse result of the disappearing estate tax is that some people of lesser means may owe capital gains taxes on inherited assets. What’s more, since many wills and trusts are written on the assumption that the estate tax exists, a will that made sense last year (or any other year, for that matter) could result in your surviving spouse getting shut of your estate.
Here’s what you need to know about the estate tax, and how to protect yourself and your heirs, at least until Congress takes action.
Both the estate tax and the generation-skipping transfer tax (on assets given to grandchildren) were repealed at the end of 2009. Both taxes are scheduled to return in 2011 at the unfavorable rates that applied 10 years earlier. The amount that is exempt from each of these taxes will then be $1 million, and the tax on the rest will be 55 percent. There is still a gift tax if you give away more than $1 million during your lifetime, but the tax rate has been reduced from 45 percent to 35 percent. Heirs will now have to use the original price paid for an asset when computing their tax liability, instead of the value upon the owner’s death. This change of “cost basis” could be very expensive, and difficult, for heirs. For example, if you inherit shares of Microsoft (MSFT) that your father accumulated over many years, you might be stuck hunting for all his transaction slips and adjusting for stock splits along the way (a potential nightmare). And when you sell any of the shares, you may owe capital gains tax on the appreciation. Each estate can exempt $1.3 million of gains from this carryover basis rule, as it’s called. Another $3 million exemption applies to assets inherited from a spouse. http://moneywatch.bnet.com/retirement-planning/article/estate-tax-what-you-need-to-know-for-2010/378294/
Houston gas pipeline mogul Dan Duncan was the 74th richest person in the world when he died on March 28. If he’d passed away three months earlier or ten months later, his $9 billion estate could have generated up to $4 billion for the IRS. But because there’s no federal estate tax this year, the government gets nothing. http://thetrustadvisor.com/news/billionaire
No Estate Tax In 2010 Means George Steinbrenner’s Family And Others Will Save Millions In Taxes This year was the first year that the estate tax has lapsed since it was enacted in 1916. At the end of 2009 Congress found itself paralyzed and unable to act. The result is that the estate tax ended up expiring. For the current tax year, 2010, the estate tax is no longer in effect. It will go back into effect next year. Steinbrenner passed away just over a week ago, leaving an estate estimated to be worth over $1.15 billion dollars. If he had died next year his estate would have been taxed at the 35% rate, meaning the family would have lost over 400 million dollars to estate taxes. Since he died this year, however, when the estate tax was no longer in effect, his family will save over half his fortune.
In life, George Steinbrenner beat the Red Sox. In death, he beat the IRS
His heirs owe a HUGE thank you to Pelosi and Congress.
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