Landowners, did you know that the rules for the Federal Estate Tax are scheduled to change dramatically on January 1, 2011? If your estate is valued at over $1 million and you have not met with an estate planner or tax professional this year, you might want to stop reading and make that phone call right now. It could be worth hundreds of thousands of dollars to your family at your death.
As things stand today, any assets in an estate valued at over $1 million would be subject to an estate tax or gift tax of 55% at the death of the owner. Simply put, the first $1 million will be exempt from the federal estate tax, and anything beyond that will be hit at this painfully high rate. This is because tax cuts made in 2001 by President Bush are phasing out due to inaction by Congress this year in extending or permanently changing the estate tax.
It does not take much imagination to see how this could affect large farmers or those with substantial timberland holdings, but smaller landowners in areas with high property values are also in danger of facing the estate tax as well. If you own a nice home, have a modest retirement account, and own some rural land, you are likely to be affected by the coming changes.
2010 is a year with 0% estate tax. This means if you pass away this year your estate is not subject to any federal estate tax. I have read in several articles that estate planners are speculating that some individuals will make decisions to suspend life-prolonging medical care such as chemotherapy or dialysis in order to try to save their families money at their passing. It is a shame that our tax code would be a consideration in the treatment of a medical condition.
The change in the code could easily mean that long-held properties must be divided and sold to pay the portion due to the IRS. If you calculate the 55% estate tax, a real estate brokerage fee, and closing costs necessary to close many transactions, heirs may be left with only 30% to 35% of their initial inheritance.
It is my understanding that there are options for protecting your estate such as trusts, limited liability corporations, and some types of family partnerships. You should consult an estate planner, attorney, or accountant for specifics on your particular situation. I am not a professional and do not offer any legal, accounting or other professional estate planning advice. My one suggestion would be to make that arrangement today. It is imprudent to believe that the tax laws will change, and you should act now based on the current guidelines. Your family will be grateful that you did.
It would be great for common sense to prevail in Congress, and allow our citizens who have worked hard to acquire means to leave to their heirs the unfettered right to do so. In the meantime, there is an ominous tax man staring you in the face. Contact an estate planner or accountant today.
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