In 2010, the estate tax expired and Congress, marred by indecision and partisan politics, failed to reinstate it. As a result, 2010 was a very lucrative year for some, perhaps most notably, the heirs to George Steinbrenner’s fortune. Estimated at more than $1 billion, upwards up $500 million in the Steinbrenner estate was saved from government coffers.
Usually, when those in the media focus on the lack of an estate tax this year, and the definite return of the tax next year, they highlight the very rich.
And it’s true; the wealthy will definitely be affected by the returning estate tax. That goes without saying. However, so will the middle class, and for this group of tax payers, the effects may be much more dramatic.
Consider this: The federal government plans to levy a tax of up to 55 percent on estates valued at $1 million or more.
How much is one million dollars?
It’s not a lot.
Sandra Block covers this side of the estate tax in her recent post, “Estate tax to return in 2011, and it could hurt ordinary folks,” in USA Today this week and it is a point worth considering.
$1 million does not have to be money in the bank. Your home, your car, your retirement savings – these are all considered assets and are therefore taxable upon your passing.
It is a dramatic lowering of the point at which government would usually tax estates. In 2009, individuals with $3.5 million or less in assets could get away without paying an estate tax. Obama proposed a return to this threshold last year, but Republicans in Senate blocked the bill.
For people like Steinbrenner, heirs might have been left with $470 million or so in 2011, instead of the full $1 billion. However, it is the middle-class family whose assets are tied up in real estate and retirement who will suffer the most significant loss of property following death – in other words, most Americans.
For those individuals, estate planning is even more essential.