We have all heard of it, but most don’t understand it. The Estate Tax, better known as the “Death Tax”, was passed into law in 1916. Over the years the rate has moved up and down dramatically, but those impacted has always been a rather small group of people. According to an article written by the New York Times, approximately 5,500 families pay the tax each year.
As of right now, however, the estate tax has been allowed to lapse. Don’t worry, the government will fix that soon enough. According to the article “until Jan. 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate”. The amount of money the government generates due to the estate tax is considerable. In 2008, the government collected over $28 billion from the death tax. Not quite enough to start another stimulus package, but still more than simply pocket change.
The biggest argument against the estate tax is the double taxation that occurs. The money is taxed as income or capital gains when it is acquired and then taxed again as an estate tax when it is passed on to family members and/or friends. Because of the huge impact on these estates, many estate planners develop very elaborate plans to try and minimize the amount of estate taxes paid.
Through first-hand knowledge I can tell you that any amount of taxes paid on an estate is hard to deal with. If you are expecting to deal with the finalizing of an estate of a loved one, my advice is make sure you understand the laws of your locality and state. Most importantly make sure you have a will and if you are dealing with aging parents, please make sure they have a will also. Having a complete understanding of their wishes will make things go much smoother and will likely remove the stress of “who gets what”.
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