Due to a provision in the Economic Growth and Tax Relief Reconciliation Act of 2001 there was no estate tax in 2010, and there are few of us that object to tax relief in any form. However, it does seem rather unfair that the estates of people who passed away during this one year escape a tax that everyone else has had to pay since the estate tax was first enacted in 1916.
A good case in point would be the estate of the late New York Yankee owner George Steinbrenner, who died in July of 2010. Forbes magazine estimated the value of his estate at $1.1 billion, and we don’t know the details of how his assets were situated, but his heirs avoided what could have been hundreds of millions dollars in estate tax liability due its repeal for 2010.
In any event, the estate tax is coming back again in 2011 and people should pay close attention to the change in the exclusion amount since we last saw the tax in 2009. At that time the estate tax exemption amount was $3.5 million, meaning that your estate would not be taxed unless its value exceeded that amount. If it was valued at $5 million, your heirs would have to pay estate tax on the $1.5 million that exceeded the exclusion. The top rate of estate taxation in 2009 was 45%.
Unless we see some sort of legislative change in the existing laws, the inheritance tax exclusion amount in 2011 is going drop all the way down to just $1 million, and this is going to make a lot more people subject to the tax. In addition, the top rate will rise to 55%. The exclusion amount was $2 million from 2006 through 2008, so if you planned your estate with the understanding that the minimum exclusion amount would be $2 million, you may want to revisit your plan and make the necessary adjustments in anticipation of the changes that are coming in 2011.