Today the tax rate is zero on federal estate tax
PHOENIX --The federal estate tax is set to disappear in 2010. That's the result of a phase-out begun during the George Bush administration.
What does that mean?
Not much to most Americans: There is an exemption for the first $3.5 million for individuals, double that for couples.
But above that, even with the phase-out, the tax rate tops off at a whopping 45 percent.
Tax attorney and accountant Bob Kamman said that has to be a consideration.
"If I have a client who's worth $10 million and he's on his death bed, I'm going to tell the family to tell the doctors to make every effort to keep him alive,' Kamman said, at least for another few hours.
And Kamman said family members should not be embarrassed to make that request -- any more than they would be ashamed about urging a doctor to take a terminally ill patient who has a living will off life support.
"I hear a lot of, 'Well, we pulled the plug because that's what he would have wanted,' ' Kamman said. "If he made that much money, he would have wanted you to get it, rather than the federal government.'
That may be true. But attorney John Vryhof, a certified specialist in estate and trust law, said it's also a gamble.
"It seems quite likely Congress will put in some sort of a patch sometime next year to restore it,' he said. More to the point, Vryhof said, the legislation is likely to have a retroactivity provision designed to capture taxes on those who died between Jan. 1 and the effective date of the new law.
"The only question is whether that retroactivity is constitutional or not,' he said.
Vryhof said someone with a really large estate might be willing to litigate that question all the way to the U.S. Supreme Court. "But most of the time the government has won those cases,' he continued, saying there even is court precedent on retroactive estate taxes.
"As far as keeping someone on life support, I don't think I would be factoring in the estate tax repeal,' Vryhof said. "But it's not my decision.'
Kamman, however, said he doubts Congress would make such a move, particularly in an election year.
"Nobody wants to vote for a tax increase,' he said.
If the question of keeping grandpa alive an extra day for tax purposes seems strange, Kamman said heirs could face the opposition question a year from now.
That's because the federal law which repeals the estate tax in 2010 repeals that repealer in 2011. At that time the tax comes back at a top rate of 55 percent, with just a $1 million individual exemption.
Kamman said that could mean relatives have to decide if grandpa is dying on the last day of next December, "do whatever you can legally to hurry it along.'