Q & A on the Federal Estate Tax, July 29, 2010

George Steinbrenner, the owner of he New York Yankees whose net worth was estimated to be over 1 billion dollars died recently. If he had died in 2009 or in 2011 he would have owed over ½ billion dollars in Federal estate taxes. However in 2010, for the first time in over 90 years there is no federal estate tax.

Q: If there is no Federal estate tax in 2010, why will the Federal Estate tax return in 2011?

A: When the Bush tax bill was passed in 2001, the Federal estate tax or as some call it the death tax was phased out over ten years and expired in 2010. However when the law was passed in 2001 most of the tax cut provisions that were part of that law expired in 2011 including the repeal of the estate tax. So in 2009 a single individual could escape Federal Estate tax if his estate was $3.5 million or less. Married couples can double the amount exempt from estate tax. In 2010 there is no Federal estate tax. However, unless Congress does something in 2011, the amount exempt from Federal Estate tax drops to $1 million.

There have been even bigger examples than George Steinbrenner. A Texas oil billionaire, named Dan Duncan with an estate estimated at over $9 billion dollars died this year. If he had died last year his estate tax would have been over $4 billion dollars.

Q: Is Congress doing anything now?

A: So far all of the expert's opinions on what Congress would do have been wrong. Most experts predicted that Congress would pass a law in 2009 making the exemption from Federal Estate tax permanent somewhere between $3.5 to $5 million dollars. I have given up predicting what Congress will do. The important thing to note is that if you have an estate of over 1 million dollars you need to be aware of what Congress is doing. If your estate is under 1 million you don't have to worry about the Federal estate no matter what Congress does. But don't forget about the Ohio estate tax.

Q: How much is the Ohio estate tax?

A: Ohio only exempts $338,333 from the Ohio estate tax. Anything above that can be taxed up to a 7% tax rate. Again with the proper planning a married couple could more than double the amount that is free from Ohio estate tax. So if you have an estate of under $1 million dollars you could still owe some Ohio estate taxes.