Death and Taxes

Death and taxes are difficult topics, but unavoidable ones. As the familiar saying goes: there’s nothing certain in life except death and taxes (and, as one of my friends says, the lawyers who aren’t far behind).
But death taxes – the taxes paid when someone dies – have been less certain in recent years. And for persons doing estate planning, uncertainty about death taxes has been a problem.

The uncertainty was (and is) a product of unpredictable politics and tax policy, at both the federal level and the state level. Estate planners have not known whether there will continue to be an estate tax or, if there will, what that tax will be.

Under the current federal estate tax law, there is an exemption of $2 million for 2007 and 2008, which rises to $3.5 million in 2009. After 2009, the scenario gets stranger. In 2010, the federal estate tax is set to be repealed, but only for on year. In 2011, the estate tax is revived, with an exemption of $1 million and a top tax rate of 55%.
Over the past several years, there have been many proposals for changing the current federal estate tax law, including proposals for permanently repealing the tax. But there hasn’t been agreement on final legislation – until recently. THere now seems to be widespread consensus in Congress that a compromise must be found prior to the repeal of the federal estate tax in 2010 and reinstatement of the tax with a lower exemption and a very high top rate in 2011. Based on the trend of negotiations in the Senate, it looks like a freeze of the estate tax exemption at $3.5 million in 2009 and an estate tax rate of between 35% and the current 45% rate is quite likely. That’s good news for estate planners; it not only means lower estate taxes, but also more certainty for planning.
The news about the Wisconsin estate tax is even better. It’s set to expire at the end of 2007, and there aren’t any serious proposals to renew it. Currently the Wisconsin estate tax has an exemption of $675,000, so it affects many more estates than the federal estate tax does.

Governor Doyle’s budget does not contain any provision for renewing or extending the Wisconsin estate tax. And the word is that the Governor is not opposed to the estate tax expiring and has no intention of proposing a replacement tax. Without support from the Governor or from the democrat-controlled Senate, it looks almost certain that the Wisconsin estate tax will be gone at the end of the year.

Once the Wisconsin estate tax expires, there will be only the federal estate tax to plan for. By 2009, the federal tax is likely to have a higher exemption, probably $3.5 million, and a lower tax rate. For most estates in this part of the country, death taxes with not be a concern.

This article is intended for general informational purposes only, and should not be construed as legal advice. Always contact your legal counsel for advice or answers to your questions.