Estate Tax Could Return - If you were a billionaire, 2010 was the year to die. That's because there was no estate tax. Next year, well, that's still up in the air. In a nutshell, the estate tax is a tax on what you leave behind -- your house, any savings you have, stocks and bonds, your entire financial package. Under the Bush tax cuts, in 2009, $3.5 million of your estate was exempt. Whatever was left after that was taxed at a top rate of 45 percent.
The way the law was written, the tax would expire in 2010 unless Congress came to an agreement to extend it. They didn't. And as a result of their inaction, some of the largest estates left behind in 2010 went untaxed, meaning the government lost out on a lot of money.
"Billions. Billions of dollars. Just the Steinbrenner estate alone the government lost out on a half a billion dollars," explains Alan Kahn of the AJK Financial Group.
The year 2011 could be a very different story. If Congress again does nothing, when the ball drops on January 1, the estate tax will rise again, with a lower exemption and a higher tax rate. Rather than $3.5 million and 45 percent, 2011 will see a $1 million exemption and a top rate of 55 percent.
"What that means in English is that for each individual, you can pass on up to one million dollars income and estate tax free and the rest will be taxed at a maximum tax rate of 55 percent," says Kahn.
A million dollars may sound like a lot of money but Kahn says it's easier to achieve than you might think.
"If you've worked 20 or 30 years and you've accumulated a pension, a 401k, you have a house, and you're living in the New York metro area you can easily reach one million or more," says Kahn.
Congress still has time to act. They could reinstate the $3.5 million exemption or they could go even higher to $5 million. And even though it's a lameduck session, Tom Herman of the Fiscal Times suspects this time, lawmakers will pass something.
Estate Tax Could Return