House Representative Jim McDermott, a Democrat from Seattle, introduced the Sensible Estate Tax Act of 2011 just before Thanksgiving.  With the President and Congress arguing about payroll taxes, this proposal has been largely out of the news. 

Rep. McDermott’s proposal would return the estate tax exemption to the 2001 level, adjusted for inflation, with a 55% tax on assets exceeding the exemption.  If passed, that would make for a $1.3 million exemption.  As it stands right now, if Congress fails to act, the $5 million exemption that was enacted into law on Dec 17, 2010 will revert back to $1 million on January 1, 2013, with a 55% tax on assets exceeding the exemption. 

I checked a bit on how much tax revenue is generated from the estate tax relative to total federal revenues.  The federal government can count on $40-50 billion in estate tax revenue if the exemption reverts back to $1 million according to the Congressional Budget Office.  That’s pennies, really, when you realize that the federal government collects over $2 trillion (yes, that’s trillion with a “t”) in revenues each year.

So, what’s the fuss with the estate tax talk?  Well, we are approaching an election year and have hundreds, maybe thousands, of individuals protesting corporate America with the “Occupy” movement.  It only makes sense to publicize the dreaded death tax to stir emotion and sell newspapers. 

Asking a very small percentage of America to pay additional taxes at their death has always seemed odd to me, especially since the estate tax is really a tax for the uninformed.  For those families who have the willingness to engage in planning, sometimes long-term planning, they can create legally and ethically transfer significant wealth with little or no estate tax.

Are you worried about how the estate tax might affect your family?  Give me a call - I can help.