Frustrating estate tax limbo curbs planning

October 18, 2010
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George Steinbrenner picked a good year for his final out.

According to Forbes magazine, the late, bombastic owner of Major League Baseball’s New York Yankees was worth $1.15 billion in 2009. And because Steinbrenner died in 2010, Uncle Sam’s estate tax need not apply.

The federal estate tax was suspended for 2010 under the terms of tax cuts enacted in 2001 during President George W. Bush’s administration.

In 2009, a 45 percent estate tax applied to individual estates of $3.5 million or more. Without new legislation, in 2011 the tax reverts to where it started: a top rate of 55 percent on estates starting at $1 million.

“It’s a hot button we’re watching closely,” said Sally VanderPloeg, director of gift planning and major gifts development at Calvin College and president of the West Michigan Planned Giving Group.

The wait-and-watch approach is no different than last year, when health care reform pushed the estate tax off of Congress’ plate, said Carol Karr, an estate lawyer at Miller Johnson. Since then, the two parties have flirted with compromise but couldn’t ink the deal, she said.

“Everyone’s guessing,” Karr said. “Some people think Congress will try to push something. Some people think they won’t do anything till after the elections. Other people say there is no way to get anything done this year; they’ll work on it next year and make it retroactive till Jan. 1.

“It would be easy to not do anything and blame the other party, and let the tax reappear because they need revenue. It’s very frustrating to clients,” she added. “Frankly, for the last nine years we’ve expected legislation. There’s been all sorts of proposals, but nothing has passed.”

Eric Smith, a partner at accounting firm Beene Garter, said estate planning is in limbo while clients wait for a resolution.

“At this point, everybody has just kind of stopped making plans,” Smith said. “Clients in my firm have had little momentum in making changes until we get some idea of where we’re going to go with this thing. There’s very little that could be done to this point.”

Marilyn Zack, director of development at the Grand Rapids Community Foundation, said she thinks the uncertainty is weighing on potential donors.

“It’s a situation where I can only assume that it’s having an impact,” Zack said. “I don’t know what I don’t know. People have conversations with their professional advisors, and if they decided to put off a gift because of the estate tax issue, I wouldn’t have any idea. But I just can’t help but believe any time there is uncertainty out there that it’s going to give people a reason to put off making a decision.”

Karr said the very wealthy are considering making taxable gifts to grandchildren and great-grandchildren this year, because the tax liability would be less than the 55 percent estate tax kicking in again next year.

But, she noted, it’s easier to hit that $1 million mark today than it was back in 2001.

“Which is why it is unbelievable they would let it stay there,” she said.

With houses worth a quarter-million dollars or more and retirement savings, the middle-class can easily flirt with the $1 million mark in assets, Zack noted.

“I think it puts an undue burden on family-owned businesses,” Smith added. “A moderately successful family business can get to $1 million worth of value quickly. Then you can’t pass it on to your kids without them selling the business to pay taxes.

“It would be nice to stay where it was or bump it up to help family-owned business. West Michigan has got an awful lot of those.”

Karr added that Michigan has a “pick-up” tax that piggybacks on the federal estate tax.

“There is no Michigan estate tax this year, but if Congress does not act, so that the federal estate tax reappears in 2011, so will the Michigan estate tax for estates in excess of $1 million,” she said.

The West Michigan Planning Giving Group is hosting national planned giving expert Craig C. Wruck, vice president of university advancement at Minnesota State University, at 8:30 a.m. at Calvin College’s Prince Conference Center. VanderPloeg said she expects he’ll touch on developments in Washington, D.C., including the estate tax, the IRA charitable rollover provision and a proposal to slash tax deductions for charitable giving for the wealthy.

For more information about WMPGG, see www.wmpgg.org on the Web.

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