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Keep an eye on estate tax under Obama

Taxation of property transfers at death can be traced back to ancient Egypt as early as 700 B.C. Nearly 2,000 years ago, Roman Emperor Caesar Augustus taxed estates of the wealthy at death.

Federal estate tax was implemented by the U.S. Congress in 1916. There was an exemption of $50,000 for residents at that time. Estate tax exemptions have risen over the years from $600,000 in 1987 to $2 million in 2008.

The exemption beginning in 2009 is $3,500,000 and a 45 percent tax on estate dollars above the exemption. Bush’s tax cuts set into motion a gradual phase-out of the estate tax.

“Death should not be a taxable event, and government should not be profiting from death,” Republican Sen. Chuck Grassley of Iowa, said.

Critics of the current system say it effectively taxes income twice, first when it is earned and again when the earner dies and leaves it to an heir.

Officially as it stands, in 2010 there will be no estate tax, but tax experts generally don’t believe that will happen under the new administration. If no congressional action takes place, the tax will revert back to 2001 levels in 2011.

Jonathan Weisman of the Wall Street Journal said Democrats in Congress will move quickly to block the estate tax free year of 2010. The Democratic stance on the estate tax contrasts with President Obama’s reluctance to press forward with his campaign pledge to raise income-tax rates on top earners.

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year.

That would exempt estates of $3.5 million for individuals to $7 million for couples from any taxation. The value of estates above that would be taxed at 45 percent.

I personally have to agree with Grassley’s statement. Death should not be a taxable event. However if we must have a tax on estates, the exemption of $3.5 million per individual and $7 million for couples from any taxation and 45 percent on amounts above would be acceptable at this time.

The element of automatic increases or indexing of the exemptions on individuals and couples is very important and should be implemented into the law. This would certainly help stabilize the estate planning process. Our current system has created a nightmare of changes in the planning process.

I would be remiss if I did not cover one very important issue of the heirs paying the estate taxes. There are four methods of paying federal estate taxes — cash, borrowing money or arranging payments to the IRS, selling off assets and life insurance.

The first three methods are the most expensive ways to pay federal estate taxes. Life insurance is by far the least expensive. If you are in need of an estate planning review, I recommend you use a team of three or four professionals. The team should consist of your CPA or accountant, estate planning attorney, estate planning life agent and financial adviser, if you use one.

Robert “Bob” Fowinkle, the president of Moore, Fowinkle, & Shroer Agency in Bradenton, can be reached at (941) 755-2628 or by e-mail at