Death, taxes, and what to do now?

Take action now.
Plan ahead for tax-free giving.
By D. Eric Kimbrough,
J. D., LL. M. (Taxation)
Special to the Chickasaw Journal
Now that our new president has been inaugurated, we hope to have a little more certainty to predict what will happen with the federal estate tax, also referred to as the “death tax.” President Obama campaigned against full repeal of the estate tax next year. He instead promised to make permanent this year’s $3,500,000 exemption from estate taxes and favored a 45% estate tax rate. While the administration’s recent pronouncements provide some near-term perspective for estate planners, the future of estate taxes, however, is far from certain.
Historically estate taxes have increased substantially under Democratic rule. President Franklin Roosevelt raised the top estate tax rate to 60% in 1934 and then to 70% in 1935. In 1981, the exemption was $115,625 and the marginal estate tax rate was 70%. It is noteworthy that more recently President Clinton proposed lowering the exemption to $200,000 while in office, which would have extended the estate tax well into the middle class.
And keep in mind that then Senator Obama’s estate tax proposal was designed well before the current economic crisis and the present atmosphere of bailout politics. Coupled with the prevailing view of the Democrats that a repeal or significant reduction in the federal estate tax would benefit only the super wealthy and add to the burgeoning federal deficit, many estate planning professionals have begun to question whether we are only a year or two away from the estate tax exemption reverting back to $1,000,000.
As the country realizes that we cannot simply borrow ourselves out of poor economic conditions, one way or another, tomorrow’s generation will have to bear the tab for the bailouts and “stimulus” packages of today. The federal estate tax can be a politically expedient point of beginning.
The bulk of estate taxes are paid by the estates of rich dead people, whose families comprise less than 1% of the population. Usually dead people do not vote; and although those that stand to inherit may, there will not be enough votes in this class to mobilize effective opposition. And with the need for more revenue, our elected officials will be unable to resist the temptation to tap into this revenue source.
Obama also proposed to “spread the wealth.” The estate tax was implemented as a tool to break up large concentrations of wealth. What better tool is there than the estate tax for spreading the wealth?
The more sluggish the economy, the more likely the estate tax will be imposed. The bank and business bailouts will need to be funded. With the economy in difficulty, an income tax hike is less feasible. The estate tax may be seen as an economically neutral and more politically favorable method to raise revenue.
My prediction, based on Democratic history and our troubled economic circumstances is that President Obama and the Democrat-controlled Congress will increase estate taxes: perhaps by letting the low $1,000,000 scheduled exemption rise out the dust and become the law again in 2011.
So, take action now. Plan for a much lower exemption in the coming years and consider the following techniques for lowering your estate tax bill regardless of where the exemption ultimately lies:
n If married, take the necessary steps to maximize the use of both spouses’ estate tax exemptions through the use of credit shelter and marital deduction trust planning;
n Whether married or single, minimize your estate tax bill through annual gifting exclusions and advanced estate planning;
n Establish a trust to hold life insurance policies to remove them from your taxable estate; and
n Review your estate plan on an annual basis to make certain that it continues to meet your objectives in light of changing circumstances and changes in the tax code.
Some of the estate planning techniques that have worked so well in the past may no longer be available after 2009. See your estate planning attorney today for a review of your existing plan and to hedge against future uncertainty.
Eric Kimbrough is a tax and estate planning attorney in Oxford, MS. He may be reached at 662.234.2330, or via e-mail at


Lisa Voyles

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