If you hurry up and kick the bucket this year, I’m sure your family and heirs will mourn your passing. But if you hang on until 2011, they could potentially have a lot more to mourn. That’s because the estate tax was repealed for 2010 but is slated to come back in a big way in 2011.
The estate tax, which is commonly referred to as the death tax, is the government’s tax on your right to transfer property at your death. And right now, this tax is being hotly debated.
Thanks to a law passed in 2001 - the Economic Growth and Tax Relief Reconciliation Act - the estate tax was phased down over the last decade, and completely eliminated for 2010. But this same law also included a sunset provision that reverts the estate tax to pre-2001 levels in 2011.
That means if you die on Dec. 31 this year, your heirs won’t have to pay taxes on anything you leave behind for them. But if you die on Jan. 1, 2011, and your estate is worth more than $1 million, it will be taxed at a rate of 55 percent - that includes a small business. So next year, more than one-half of what you’ve spent your life earning will get swallowed up by the government instead of being passed on to the people you love.
Honestly, if you’ve been having a lot of health problems, you can’t blame your family if they’re secretly hoping you croak by New Year’s Eve. Sorry for the morbid jokes, but I think they illustrate how ridiculous the current law is.
Clearly, Congress needs to act to reform the estate tax. I believe it should be permanently repealed. (And mind you, I’m not opposed to the estate tax because I’m expecting a bountiful inheritance to come my way any time soon. I’m one of six kids, after all.) It simply doesn’t make sense that the government gets to rake in more than one-half of your assets just because you died and willed it to your family. I think we all pay enough taxes on what we earn while we’re alive.
To try to look at this issue from the other side’s perspective, I read a few articles written by the proponents of the death tax. I noticed one consistent theme that really bothered me. Many said people should work for their own wealth, not just be the beneficiaries of what their predecessors have created. But that’s not really any of their business, is it? Why should they - or, more accurately, the government - have a say in what and how much is passed on to the next generation? It sounds more like a family decision to me. Especially because it often pertains to family businesses inherited upon the founder’s death.
In the HVAC industry, there are many thriving family businesses that have been built up and passed along to succeeding generations. After grandpa starts the shop, it’s been a time-honored practice to pass on what he created to his children, who in turn may pass it on to their children. This has never struck me as a way of hoarding wealth within a family. And it doesn’t necessarily mean that the younger generation gets to enjoy the easy life. Instead, the succeeding generations generally feel the full responsibility of carrying on the family legacy. And they work hard to maintain and better the family business.
To keep that practice alive - and to keep all those wealthy grandparents alive past 2010 - Congress should ditch the death tax for good.