Lately, we’ve been fielding questions from our Estate Planning clients regarding the status of the Estate Tax in the year 2010 and beyond. As the issue is applicable to all small business owners, I thought I would pass along a brief update on the situation as it currently stands.
As I’m sure you have heard in the news by now, due to inaction by Congress the Estate Tax has lapsed in 2010. Perhaps the most notable beneficiaries of this are members of the family of George Steinbrenner, who will save a reported $500 million due to the timing of Mr. Steinbrenner’s death! While there are fears that Congress could retroactively apply a new law to the estates of those who pass away in 2010, the longer Congress takes to act the less likely it is that any new tax would be retroactive. Additionally, the Generation Skipping Tax does not exist in 2010.
However, as we know, when Congress is involved all good things must come to an end. Due to the provisions of the 2001 bill that ended the Estate Tax in 2010, the Estate Tax will come roaring back in 2011 with a vengeance. Unless action is taken by Congress, all estates with $1 million in assets will be subject to the Estate Tax (as opposed to $3.5 million in 2009) and the top tax rate will be 55% (as opposed to 45% in 2009). While both Democrats and Republicans have stated their intention to pass a bill raising the minimum net worth required to be subject to the Estate Tax, neither side has put forward a bill that has garnered enough support to be passed. If there is no action, many small businesses and their owners will be negatively affected.
While the future of the Estate Tax is uncertain, there are steps you can take to minimize the effect of any estate tax on your family and your business should the worst happen. It is important to implement and review your Estate Plan with an attorney to determine how you can best address this confusing situation.