Estate Taxes Little Threat To Rich & Famous Homeowners

Almost 2.5 million people passed away in 2010 and few of them took estate tax worries to their graves.

The IRS tells us that just 15,000 estates filed tax returns in 2010, down from 108,000 in 2001. Estate tax filing has dropped 86% not because we are living longer, dying less  or have become poorer but because the we allow the rich and famous to keep more of their money.

“Since 2001,” says the IRS, “the filing threshold has gradually increased from $675,000 for 2001 deaths to $3.5 million for 2009 deaths. The estate tax was temporarily repealed for 2010 deaths, but was later reinstated on a retroactive basis with a $5.0 million exemption level and a top marginal tax rate of 35 percent. This exemption level and top marginal rate will stay in
effect for the estates of 2011 decedents.”

The IRS says that for the Filing Year 2010 estates worth $130 billion filed tax forms. That does not actually mean a dime was paid to Uncle Sam.

Real Estate & Married Couples

About half of all people at the time of death are married and that means there is no estate to tax — the houses, cash and other goodies just go to the surviving spouse tax-free.

In real estate for example, married couples — and only married couples — are allowed to own property as a tenancy by the entireties. For tax and liability purposes both spouses own 100 percent of the property. If one dies the other still owns 100 percent, thus nothing was inherited and therefore there is no inheritance and estate tax. Martial ownership also protects marital assets if one is sued since the property is not actually owned by either party in an individual and separate sense.

Thus good estate planning means getting hitched. The IRS says that “almost 61 percent of 2010 estate tax decedents were male. Just over half of all decedents were married, while another 36 percent were widowed. Only 13 percent of decedents were single, divorced, or separated.”

Marital status leads to big deductions. Married couples avoided taxes on estates worth $42 billion and only 9 percent of all marital couples owned any estate tax.

Many estates are shielded from taxes because money is given to charities. Estates  The government reports that “estates with $20 million or more in gross estate accounted for over 63 percent of this total, despite representing only 6 percent of filers.”

Estates in 2010 had potentially taxable estates valued at $160 billion. So what was the actual tax obligation of there now-gone filers? That would be just $13 billion — an effective tax rate of just 10 percent.

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