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Estate Planning Pandemonium, 2010 and Beyond

Partisan bickering and indecision allowed the federal estate tax to expire last year for the first time in nearly 100 years. The result is 365 days of reprieve for wealthy Americans. In addition to making changes for this year, those planning estates are looking forward to 2011, when the estate tax will return at an even greater percentage.

Up until 2009, any one individual could withhold up to $3.5 million from estate taxes. Suppose you have $5 million in assets. Prior to 2010, you would only have had to pay an estate tax on $1.5 million of that money. In 2011, the amount of exempt assets decreases by more than 70 percent to just $1 million.

In addition, the rate at which those remaining assets are taxed will jump 10 percent, from 45 percent all the way up to 55.

So say you have that $5 million. In 2009, your family could have expected to receive about $4,325,000 of that money. In 2010, without an estate tax, they would inherit all $5,000,000.

In 2011, heirs would only inherit $2,575,000 as the government scrambles to make up for the money they are losing this year as a result of their inaction. For example, billionaire Dan Duncan passed away in March leaving $9 billion in untouchable assets.

There had been some talk regarding the possibility of a retroactive estate tax, but the notion appears increasingly unlikely. For those caught in the crossfire, who set up estate plans prior to 2010 with the idea that they would not be taxed (individuals worth $3.5 million and couples worth $7 million), it is back to the drawing board.

To many, it doesn't seem right or fair. Still, estate planning professional should have more than enough to stay busy in the coming years.

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