Should you care about the 2011 estate tax changes?

Don’t you have to be rich to worry about estate taxes?  Well, that depends on how you define rich.

Beginning in 2011 (unless Congress does something different), the estate tax exemption will be $1 million per person.  Experts have been speculating for years about what Congress will do.  But Congress has done nothing so far.

What does this mean? It means that you need to add up your savings, real estate, life insurance, IRA’s, and other assets.  For most people, all of those assets will be counted in calculating estate tax.  Any asset value above the $1 million exemption (our “coupon” as we call it) will be subject to upwards of 50% tax rate.

So, if someone has $200,000 in savings, a house worth $250,000, an IRA worth $300,000, and life insurance of $500,000, they suddenly have an estate tax risk.  Add in a business, farm or other non-liquid asset, and the estate tax is tragic.

Will Congress change this prior to January 1st?  Well, let’s look at the facts:

• Congress has not passed any permanent estate tax changes in the past 10 years, although numerous bills have been introduced.
• The government certainly needs the money from the extra tax, based on current deficits and future spending plans.
• If Congress does nothing (which some people would say they are good at doing!), then the coupon amount will be $1 million next year.  This is not speculation, it’s a certainty unless Congress takes action.

I’ll leave you to your own conclusions.  Watch for upcoming estate tax workshops with David Edwards to learn more about how to protect your family’s wealth.

We can’t plan for what we think.  We can only plan for what we know.  And what we know is that, as of now, January 1st will expose many to estate tax risks.