John Kluge died in September having an estate valued at $5 billion. How much will his estate pay in federal estate taxes? Zero.

You die in January, unmarried, having an estate valued at $5 million (which includes life insurance on your life). How much will your estate pay in federal estate taxes (unless Congress takes some action to change existing law)? Well over $2 million.

How can this be?  In 2001 Congress passed legislation gradually phasing out estate taxes until calendar year 2010, when estate taxes were eliminated altogether. There was one catch, however. The legislation was designed to “sunset” (i.e., to revert back to the law as it existed prior to 2001) on January 1, 2011, unless Congress took action to prevent the reversion.   Although few in the estate planning business thought estate taxes would be eliminated permanently, almost everyone has assumed for years that Congress would prevent the dramatic reversion to pre-2001 estate tax rates.

But here we are at the end of October 2010.  Congress has done nothing. As the law exists, a billionaire who dies this year pays no estate taxes, but a person who dies January 1st having a gross estate of more than $1 million (including life insurance proceeds) will pay federal estate taxes equal to a minimum of 41% on the portion of the estate that exceeds $1 million.

When we include life insurance proceeds, many have an estate in excess of $1 million. So what should you do? How should you plan to minimize estate taxes? Should we wait and see what Congress does? Should we trust Congress to take some action before the end of the year? Or should we create an estate plan using the assumption that estate taxes will rise dramatically January 1st? These are loaded questions fraught with risk. If you would like to discuss alternative approaches, please contact Pete Goergen at MG Law.

Pete Goergen

The materials on this website are meant for informational purposes only and nothing contained in this site is to be construed as legal advice. If you need legal advice, you should contact an attorney directly. Do not act upon the information on this site without seeking professional guidance. Information on this website about specific matters or success in previous cases is not meant to be a prediction or guarantee of similar results in any other case. Each case consists of factors and applicable law unique to that case and you should consult an attorney.

CategoryEstate Planning