Repeal of the Death Tax?

Earlier this week I was listening to a story on Utah Public Radio about the bipartisan Death Tax Repeal Act of 2013 that was introduced into both the House and Senate in June to repeal the federal estate tax, which is sometimes referred to as the death tax.  This legislation comes in follow-up to the American Taxpayer Relief Act of 2012 that made permanent the individual estate tax exemption at $5 million (indexed for inflation, it is currently $5.25M per person).   At the same time, President Obama’s 2014 Budget proposes reducing the individual exemption to $3.5 million.According to Sen. Orrin Hatch: “the Joint Committee on Taxation [estimates] that 2,400 farms and 2,700 small business will be subject to the death tax this year alone . . .”  The UPR story reported:  “A 2009 study by the Congressional Budget Office indicated that one-third of family business that were required to pay the estate tax owed more in taxes than they had in liquid assets.”  I think it is somewhat difficult to get at the true impact of the death tax on farms and family businesses.  Certainly the increase in the exemption in 2010 would have altered the findings from 2009, but that may have been offset by the surge in farmland values throughout the Midwest in the last several years.There are those who believe that any tax at death is unfair and immoral at any level, and there are those that view the tax as less of a revenue generator and more of a vital social policy to ensure re-distribution wealth.  In my opinion, the reality is that given the current climate in Washington D.C. I don’t see either side getting their way.  I believe for the time being we will continue to have an estate tax, but that the estate tax exemption and rates will remain where they are.   Additionally, it is important to know that as the federal estate tax exemption has increased more and more, states are maintaining their estate tax exemption at a lower level meaning a State death tax may still be owed.What is essential to keep in mind is that many estate and succession planning issues exist for family farms and other family businesses regardless of the status of the death tax.  For the time being, if you are one of those individuals who may be required to pay the tax, in addition to your other planning, make sure you adequately plan for the liquidity to do so by purchasing sufficient life insurance and have proper planning in place to minimize the impact of the tax.

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The Importance of Process