Monday, April 24th, 2017

A New Year Starts With Uncertainty

September 13, 2010 by  
Filed under Estate Planning

As most of us approach the start of a new year, changes are anticipated in U.S. estate taxation that present significant challenges of uncertainty.

The U.S. Estate Tax applies to two sets of my readers:

  • any U.S. citizen no matter where the person resides, on all of their assets worldwide; and
  • any non-U.S. citizen no matter where they reside, who owns any assets (of any kind, including real estate, investments, retirement accounts and bank accounts, etc.) that are located in the U.S.

Good news! In 2010, the U.S. Estate Tax does not exist.

More challenging news: unless the Obama administration and Congress act before the end of 2010, the U.S. Estate Tax will be reinstated as of January 1, 2011. Barring any legislative changes, this will result in increased taxation.

The number of estates that will now be subject to the estate tax will multiply exponentially. An estate valued at up to $3.5 million was exempt from U.S. estate taxes in 2009. But in 2011, only $1 million will be exempt from U.S. estate taxes. In addition, the U.S. estate tax rate will increase to approximately 55% of the value of the asset on the date of death over $1 million.

This means that in 2011 a U.S. citizen’s heirs will inherit $1 million, plus less than 45% of the value of the deceased’s remaining assets. It is not a straight 45% due to state estate taxes, one or more countries’ income and capital gains taxation, U.S. generation skipping transfer taxation, as well as other expenses and taxes.

The average “˜Joe’ who has worked for many years typically owns a home, has accumulated a pension, has invested in life insurance and perhaps carefully chosen investments. This easily amounts to over $1 million. Should he live beyond January 1, 2011, he will owe approximately 55% of the value of the assets over $1 million in U.S. estate tax.

Whether the law will be updated or changed is truly anyone’s guess. Articles have been written across the spectrum, from forecasting major change to none, and from complete elimination of the estate tax to increasing it substantially. Of course, I have my own premonitions, but I will leave that for my upcoming article in the Jerusalem Post.

In any case, professionals are encouraging persons owning assets in the U.S. and individuals owning more than $1 million to plan, so as to avoid high probate fees, applicable cross-border taxation and to facilitate their heirs’ paperwork burden upon their deaths.

Shana Tova to all: may it be a year that sees us plan without the need to utilize the plans.

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