Our 2014 Fredericksburg Business Insider sponsors
|Click here for information on sponsorships|
Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
This week’s investment column (7/18)
THE PICTURE that went with a Wall Street Journal article on the estate tax last weekend told the tale.
It showed 81-year-old Eugene Sukup dressed in a dark suit standing at his family burial plot in Iowa. At the front of the photo is a gravestone marked “Sukup.” Over the photo is the headline “Too Rich to Live?”
Like many wealthy elderly Americans, Sukup faces the awful knowledge that unless Congress does something soon to change the rules on the estate/death tax, his heirs will have to pay a huge amount of his assets to the federal government if he lives beyond this year.
Sukup, the founder of a grain-bin manufacturer in Iowa, told the Journal that his estate taxes could be more than $15 million if he dies next year, while they’d be zero this year under current rules. He’s quoted as saying, “You don’t know whether to commit suicide or just go on living and working.”
Congress’ lack of action is to blame for putting anyone into that horrible situation.
A Congressional act in 2001 cut the federal estate tax rate to 45 percent and gradually raised the amount each person could exempt from the tax. There are no estate taxes required when assets are left with a surviving spouse. By 2009 the per-person exemption had increased to $3.5 million. The tax then disappeared entirely this year.
It was widely believed that Congress would act last year, possibly to extend last year’s $3.5 million exemption and 45 percent tax rate indefinitely. But Congress never came to an agreement.
Last year, wealthy people near the end of their lives at least had a financial incentive to hang on until this year, when the tax disappeared. But if Congress doesn’t act before the end of 2010, the exemption will go to $1 million next year with a top tax of 55 percent.
For an estate worth $5 million, the tax consequences of dying one minute after midnight on Jan. 1, 2011, could be more than $2 million.
The Journal quotes an estate-tax attorney saying there would be “truly gruesome” cases at the end of the year as wealthy elderly people decide whether to end their lives before the new tax goes into effect.
“Economists might call the taking of a life to reap a tax advantage a ‘perverse incentive,’” the Journal writes. “District attorneys might call it homicide.”
Of course most Americans would never have to think about this matter. But as the Journal points out, reducing the exemption to $1 million would affect eight times more people than were impacted by the $3.5 million exemption in 2009.
It’s still possible that Congress could act before the end of the year, bringing clarity to the matter and peace of mind to people like Eugene Sukup.