The Estate Tax Myth

No, estate taxes are very real. The myth is in just how many people are affected by them.

Last Friday I attended the State Bar of California's 16th Annual Estate & Gift Tax Conference, put on by the Estate and Gift Tax Committee of the Taxation section. Keith Schiller, of the Schiller Law Group in Orinda, CA, talked about discounts in estate tax planning. He put out some pretty interesting statistics:

In 1976, 7.65% of all deaths generated an estate tax return. In 2002, only 1.17% of all deaths generated one. In 2001, 108,330 estate tax returns were filed. It is projected that by 2009 that number will drop to 26,700.

What is my point? For all the talk about the "death tax" and how it is destroying the financial health of ordinary Americans, the fact is that the estate tax affects very few.

You may have heard about the pending repeal of the estate tax. Currently, the tax applies to net estates of $2 million or more. In 2009, that limit will increase to $3.5 million. The tax goes to $0 in 2010, and then returns in 2011 for estates over $1 million. The consensus is that legislators will act to either repeal the tax completely, or enact permanent estate tax legislation in one form or another. A net estate is the value of all the deceased person's property, real or personal, tangible or intangible, wherever situated. From this, deductions are taken for transfers between spouses, either outright or to qualifying trusts, for charitable contributions, and other amounts including funeral expenses, estate administration expenses, etc.

The upshot of all this is that, for most people, estate taxes are simply not an issue. So, unless you are among the very few affected by estate taxes, you don't need to worry about them when planning your estate.