The Crazy New Estate Tax Laws

Now that it is 2011 is everybody really excited about the new estate tax laws? What, you didn't realize they have changed the estate tax laws? Sure enough, one of the many changes that happened when they passed the Tax Relief Act of 2010 to extended unemployment benefits was a change of the estate tax. What happened is that for two years and two years only, the estate tax exclusion limit shifts to $5 million for every individual with an estate tax rate of 35%. This means for 2011 and 2012, if you die in those years your estate will be taxed at 35% for any amount over $5 million. This, of course, has caused me to change my online estate tax calculator to reflect the new changes, but then I had to guess what would happen after 2012. For now I am leaving the $5 million exclusion and 35% rate in place, but most likely the exclusion limit will go down and the rate will go back up. The government really needs the extra revenue and the large exclusion are rate are counterproductive to increasing tax revenue (i.e. 2011 and 2012 are good years to die if you are wealthy.) How did this law change actually help the economy? The truth is, this very much depends on two key factors: 1) How the economy is doing by late 2012 and 2) who is elected President and to Congress in 2012. In reality the estate tax affects only a small percentage of US households, and the new increased exclusion limit means it will affect even less people. Extending unemployment benefits makes sense in helping the economy; helping wealthy people pay less estate tax does not. Statistics show that with the $5 million exclusion the tax will now hit only 0.25% of all US estates instead of the 2% of all estates it would hit if the limit were $1 million. At least those folks with estates between $1 and $5 million can now die happier.