God Must Be a Yankee Fan!

With President Obama's signing of the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 on December 17th, one thing became clearer: most estates for those who died in 2010 would not be subject to the Federal Estate Tax. For example, the billion dollar estate of form Yankees owner George Steinbrenner will only be subject to New York State estate tax, which tops out at about 16% and not the Federal Estate Tax, which will help the Steinbrenner family to continue to pay the highest dollar for young baseball talent and free agents (some overpriced I may add).

Why is planning so important? The reason is that the future is somewhat grey as to what the Federal Estate Tax is going to be. The Act passed on December 17th only bridged the estate tax issue until December 31, 2012, after that there are concerns that the estate that could return to its 2009 thresholds or even worse, its 2001 thresholds. When we talk about thresholds it is easy to see why this could have a major impact on many estates and that is why it is difficult to determine currently if your estate will be subject to tax in the future. Currently under the new legislation the Federal Estate Tax is for estates greater than $5,000,000 and they would be taxed at 35%, but that could all change. For example, if the government reverts back to the 2001 thresholds, then estates greater than $1,000,000 could be subject to a 55% tax; if they revert back to the 2009 levels, then estates greater than $3,500,000 could be subject to a 45% tax; therefore you can see why estate planning is so important because it is very hard to plan the death side of this equation.

The other part of this that people take for granted is the assumption that they will never have to worry about this because they will never achieve any of these thresholds. This may be the case if the limits stay between $3,500,000 and $5,000,000, but if the levels drop down to approximately $1,000,000 this would effect many more people because of what gets included in your estate. If you consider when you start adding up your investments, house and retirement accounts it might be very easy to get close to that $1,000,000 threshold.

No one ever enjoys talking about dying and planning for one's death but that planning may be able to save your estate thousands of dollars. You should be reviewing your will timely with your attorney and accountant to make sure that you and your heirs will receive that largest benefit from your estate. This may mean establishing gifting timelines or setting up trusts, which may come at a cost, but if it ends up saving your estate and heirs money, wouldn't it be worth it?