A vote is scheduled on Capitol Hill to determine if it is time to put the “death tax” to death. Also known as an estate tax the federal government taxes estates that are above the federal exemption amount of $5.43 million. Do you know how the federal estate tax changes your estate plan? Did you know that the tax has a big influence on how you hold your Palm Beach real estate?
Federal Estate Tax Could Take Out 40% of Your Estate
- The federal estate tax, or “death tax” as its detractors call it levies a 40% tax on every cent over the $5.43 million exemption amount.
- This exemption is doubled for married couples, allowing a total exemption of almost $10.9 million!
- How have people got around the estate tax?
- Have you ever had any high net worth relatives who used LLC’s or partnerships with family members to mitigate the effect of the tax on their Delray Beach real estate?
- Have you ever seen a family move all of their Palm Beach real estate into a revocable trust?
A Bill to End the Federal Estate Tax
- The House of Representatives will vote on a measure to repeal the controversial tax that has two names depending on which side of the aisle you sit!
- Republicans at large, including the bill’s sponsor, Rep. Kevin Brady (R) of Texas argue that the policy unfairly double taxes wealth that was already taxed as income.
- In other words an individual who leaves an estate presumably made that money and when he or she made it, they paid income taxes. Even if the money was inherited, Republicans argue, it still was taxed at that time.
- What about the large family trusts (think Vanderbilt, Carnegie, Flagler) that have existed before America even had an income tax? Is any of that money still around?
- This bill is expected to pass in the House but unlikely to make it through the Senate where it has just 54 of the 60 needed Senators.
- How do you think President Obama feels about this? Hint, he has threatened to veto it.
President Obama
- The President has threatened a veto on any such reforms.
- In fact, Obama proposed in January getting rid of the stepped-up tax basis on inherited property which would raise taxes on inheritance, significantly.
- Presently when someone buys stock for one dollar and sells it for five, they pay income on four dollars which is their basis (1) taken out of the amount realized (5). If that same person dies before selling the property, the heir who got that stock immediately has astepped up basis of the present fair market value. What does that mean? Well, if the original person sold the property they would pay tax on four dollars but if the person dies and their son sells it the same day, presently the heir pays no tax.
- Do you think that is fair?
Florida
- Does Florida have an estate tax? Have you prepared for other tax related expenses that are unique to Florida residents?
- Is your Jupiter home safe and ready for probate?