The estate tax is controversial in many quarters because many feel it is not fair and balanced taxation. Critics of the tax cite a number of different reasons why they feel this way. Perhaps the most frequently raised allegation is that the estate tax is an instance of double taxation. Another is that it may not be good public policy to punish economic success.
You pay taxes throughout your life including income tax on all of your earnings. When you take some of these earnings and save or invest them – a wise move – they have already been taxed. Why should the government come along and tax these resources once again after you pass away?
In addition to the fact that the estate tax is an instance of double taxation, some people decry the tax as a punishment of sorts leveled against those who have achieved some financial success during their lives. This argument is based on the fact that not everyone has to pay the estate tax. If it is so necessary for the financial well-being of the country as a whole, why doesn’t everyone have to pay it?
Right now the estate tax exclusion is $5 million, so you don’t have to pay the tax if the overall value of your estate is less than this amount. In 2013 however the estate tax exclusion is scheduled to go down to just $1 million and the rate is going up to 55%. If you were able to accumulate say $2 million during your life, should your family be fairly presented with a $550,000 estate tax bill? Someone who would suggest that he or she is getting punished for simply seeking and achieving a particular level of prosperity may have a point.
Should you be exposed to the estate tax, there are things that can be done to mitigate the damage. If you don’t currently have a plan in place, simply take a moment to arrange for a consultation with an experienced estate planning attorney.
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Parman & Easterday