The State of the Estate Tax

Congress has taken on some pretty big issues in the last year to 18 months, including health care reform. But has focus on everything else meant that some of the other items that have needed action have been left in the dust? The estate tax may be one of those issues that will become a problem if it isn't addressed soon.

The Estate Tax, commonly referred to as "the death tax" and is a tax on property transfer upon death. Essentially, all items are valuated at their current fair market value and the total amount is referred to as the "gross estate".

The total amount of tax paid on the total amount of the gross estate has varied over the last several years. In 2004, for example, the total amount allowed before tax was $1.5m, while those who died on or after January 1, 2009 have since been allowed $3.5m before paying tax.

Deductions are available to avoid paying more estate tax than is required. These deductions include: charitable deductions, costs of administration of the estate (lawyers' and accountants' fees), as well as any debt that that exists.

The big question now is when Congress will choose to address the issues of the total amount of the gross estate that is allowable before estate tax is assessed. Many people are worried or concerned about this total number because of the huge tax implications: the 2009 tax law required a top rate of 45% to be assessed on assets worth over $3.5m (or $7m for couples).

Senate Majority Leader Harry Reid and Minority Whip Jon Kyl have been working to create a solution to the estate tax question but they have not been able to produce a result just yet.

The real concern for many people is the possibility of a retroactive levy, which would be argued as unconstitutional by taxpayers. If Congress does not act quickly, the levy would sit at pre-2001 levels of 55% estate tax on estates valued at $1m or more.

Upcoming elections might put more pressure on lawmakers, who know that the estate tax issue is on many voters' minds. With an aging electorate, the estate tax issue is at the forefront of concern for a high number of Americans, whether facing the "death tax" themselves, or for younger people who are concerned about liquidating a parent's estate.

"Frustrations Grow Over Lawmakers' Failure to Tackle Repeal of Estate Tax". http://thehill.com/homenews/senate/84359-frustrations-grow-over-lawmakers-failure-to-tackle-repeal-of-estate-tax

"Estate Tax". http://www.irs.gov/businesses/small/article/0,,id=164871,00.html