A 60% Estate Tax Possible Next Year

If Congress doesn’t act, the estate tax will revert back to its 2001 levels, grabbing 55% of assets over $1 million. This is what people have said all year, but if you break it down, this is what will actually happen next year:

• For estates between $1 million and $1.25 million, the rate is 41%
• For assets between $1.25 million and $1.5 million, the rate is 43%
• The rate gradually increases until it gets to a 55% rate on assets over $3 million
• For assets between $10 million and $17.184 million, there is a 5% federal surtax in addition to the 55% rate
• The surtax disappears once the estate is over $17.184 million.

This 5% surtax is just a tool for getting to a flat 55% rate on the entire estate. Why not get rid of the surtax and have a transparent rate structure? Leonard E. Burman, a professor at Syracuse University’s Maxwell School of Public Affairs thinks “[i]t’s a deliberate effort to confuse people, and it works.”

Ashlea Ebeling, A 60% Estate Tax Could be Around the Corner, Forbes, Oct. 20, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.