Home  Coloradoan Archives  Sr. Voice Archives  FAQs  Links 
Law Offices of Ronald W. Rutz
Senior Voice Archives

July 6, 2005: Death Taxes

Q: I never understood why so much political capital has been expended on fighting the "death tax" and why myths keep being used to justify these actions.

A: No one likes to pay taxes and the debate continues as to where to draw the line on the continuum between absolutely no tax to taxes on everything.

According to the T.V. program Wall Street Week, 40% of Americans feel that death taxes will be imposed upon their estates. In reality about 1.3% of the approximately 2,300,000 people who died in 2003 had any kind of death tax imposed. As for effects on farm families, numerous folks in agriculture, such as the University of Iowa farm tax expert, Neil E. Harl, feel that they have never encountered a farm business that had to be sold to pay taxes. But I am sure a few examples might be presented here and there over the last fifteen years or so.

Mr. Harl also maintains that the elimination of death taxes is not necessary to enable farm families to keep the farm business in the family. He has continually tracked this sort of things and feels that from his collected statistics, it appears that fewer than 10% of the farm and ranch businesses "are on a trajectory of continuation beyond the life of the founder."

So why should you and I be concerned? LetŐs review a little back-ground. As previously stated right now the "death tax" effects around 1.3% of us. Beginning in 2006 each of us can pass on tax free at death $2,000,000 (a couple with Tax Wills can leave $4,000,000). Furthermore with basic, inexpensive techniques, death taxes can be eliminated, even on much bigger taxable estates. Additionally all appreciated property that is inherited by beneficiaries gets a stepped-up basis to the date of death value, thus avoiding all tax on the appreciation that occurred during the deceasedŐs life.

In the fight to inflict "death to death taxes," the politicians did in fact eliminate any death tax for one year (2010) but also eliminated the stepped up basis, thus expanding the "death tax" consequences to the general public and beyond the 1.3% of the estates currently affected. (Remember this tax effect will not be at death but when the inherited appreciated asset is sold.)

Then in 2011, the "death tax" comes back but only with a $1,000,000 exemption and only a partial stepped-up basis thus fulfilling the fear that 40% of us have had about tax liability being stuck to the assets we pass on.

But what if the law is changed to make the 2010 death of death taxes permanent? If nothing else is done, then the elimination of the stepped up basis will also continue to be permanent. The question for the rest of us (98.7%) is why should we now suffer tax exposure, just so the "death tax" can be eliminated on the very wealthy or on those who did not get their affairs in order.

Estate planners have developed ways to eliminate death taxes under the current law. Except for a handful of techniques in real estate, there are a few ways to deal with capital gains exposure.

So if Congress is successful and eliminates "death taxes" but does not grant a stepped-up basis for appreciated property, have you been benefited or hurt even more?

Home  Coloradoan Archives  Sr. Voice Archives  FAQs  Links