the Estate Tax
SEPTEMBER 2006 - Difficult
as it may seem to believe, the federal estate tax has a
long, consistent history in this country. The tax, imposed
on the estates of high-net-worth taxpayers after death,
has been around since 1916, and, with the exception of rate
adjustments and periodic increases in the amount exempt
from the tax, its principle has remained essentially unchanged.
Americans with estates over a certain amount knew they would
be affected by the tax, knew what the tax would be in the
future, and could, at the very least, plan accordingly.
consistency can no longer be expected. Since the Economic
Growth and Tax Relief Reconciliation Act was passed in 2001,
a divisive, politically charged debate has placed the status
of the tax in constant flux, and change seems to be the
norm, not the exception. As it now stands, estates worth
$2 million or less are excluded from the tax, but in 2009
this will increase to $3.5 million. At the same time, estate
tax rates will decrease from a top rate of 46% this year
to 45% next year through 2009. In 2010, the estate tax will
be repealed in its entirety, but—in a bizarre twist—in
2011 the tax will return, at pre-2001 levels (an exclusion
of $1 million and a top rate of 55%).
enough for you?
Instability Hinders PlanningWhether you think the estate
tax should be raised, lowered, or eliminated altogether,
it’s hard to argue with one point that’s getting
little press: Constant changes severely limit the ability
of high-net-worth taxpayers to engage in tax planning. This
is a real issue, not merely an esoteric controversy being
debated in the halls of Congress. Indeed, few political
debates reach into the hearts and homes of affected Americans
more powerfully and more tangibly. Right now, many Americans
are unable to adequately plan for the future of their loved
ones, and in the end, what’s more important, or more
visceral, than that?
the political maneuvering also significantly limits the
ability of CPAs to provide informed guidance to their clients.
Wills, trusts, charitable bequests, and other estate-planning
documents are now burdened with a litany of contingencies
and alternative planning devices designed to allow taxpayers
to pass their assets on to loved ones effectively. But the
introduction of complexity and contingencies in an attempt
to “even the odds” of an uncertain future only
increases the chances that a taxpayer’s final wishes
may never be realized.
the general public and many CPAs, the particulars of the
estate tax debate are not, in fact, the truly important
issue. It is the uncertainty. The NYSSCPA’s Tax Division
Oversight Committee recently prepared a letter to U.S. Senators
Hillary Clinton and Charles Schumer stating that, without
legislation to clarify the long-term treatment of estates,
planners and the public are left playing a guessing game—a
situation that does not foster confidence in our system
the outcome—be it elimination or adoption of a concrete,
stable tax—our political leaders in Congress need
to make a firm decision. Pick one rate, pick one exemption,
and stick to it. After years of change and uncertainty,
it’s time for Congress to put aside political differences
and work together for the good of the American public.
Publisher, The CPA Journal
Executive Director, NYSSCPA