Over the past several months, I have written several columns about the impact of the 2010 Estate Tax rules. In summary, there is normally a Estate Tax or "death tax" on inheritances. The Estate Tax is typically around 50%. The good news is that not everyone is subject to the Estate Tax. In most years, there is an Exemption that shelters a certain amount of inheritance from the Estate Tax. The Exemption has ranged from $675,000 in 2001 to $3.5 Million in 2009. Under current 2010 law, there is an unlimited Exemption from the Estate Tax which is another way of saying that there is no Estate Tax. However, in 2011, the Estate Tax comes roaring back with only a $1 Million Exemption.
At the start of 2010, many observers felt that Congress would retroactively pass a law that would prevent an unlimited Exemption for decedents dying this year. Although the House passed legislation in December 2009, the Senate was never able to ratify the bill. Now that it is the middle of summer, most experts feel that Congress will not be able to pass any retroactive Estate Tax legislation for the year 2010. Furthermore, observers felt that if an ultra wealthy person died in 2010, that person's heirs would have great incentive to challenge any attempted retroactive Estate Tax legislation. As it turns out, a few ultra wealth individuals did in fact die in 2010, including New York Yankees owner George Steinbrenner.
When George Steinbrenner purchased the Yankees in 1970, he paid $10 Million. Today, the team is worth approximately $1 Billion. If George Steinbrenner died in any other year, his heirs would have been required to pay hundreds of millions of dollars in Estate Tax. However, because the 80-year-old baseball icon died in 2010, his heirs will not have to pay the IRS a dime in Estate Tax! If Congress attempts to pass a law that retroactively reinstates the Estate Tax in 2010, you can bet that heirs such as George Steinbrenner's family will hire high-powered attorneys to challenge the legality of retroactively creating such a law. As the husband of a native New Englander and a loyal Red Sox fan, it's disheartening to see George Steinbrenner get away with another one.
With the passing of George Steinbrenner, it definitely appears that there will not be any Estate Tax for decedents dying in 2010. However, observers thus far have not had good luck in predicting what will happen with regard to the Estate Tax law. Almost all practitioners agree that Congress needs to come up with a permanent and fair Estate Tax solution for decedents dying in 2011 and beyond.
KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-920-0205.