Robert Woods, writing for Forbes:
Under current law, estates worth $5.45 million or less are exempt from federal estate tax. Beyond that, you pay. Call it an estate tax, a death tax, or a tax on accumulated wealth. Whatever you call it, it is controversial. It is entirely distinct from income tax. You pay income tax as you earn, but whatever you have left might be taxed on death, again. Theoretically, it stops real fat cats from getting fatter generation after generation. The idea is to stop dynasties that operate with a kind of royal attitude and bankbook. But does it work, and should it work on top of income taxes?
Most estate planning lawyers will say that the really big estates can find plenty of ways around most of the rules to at least materially reduce their impact. Planning to avoid the estate tax is expensive, and requires years of pre-planning. However, the notion that the federal estate tax is going to stop, or even significantly curtail, the accumulation of wealth may be a little naive. What the estate tax succeeds at doing, though, is catching many people unawares after they have worked and paid income tax their whole life. It can force sales of family companies, and sales of family farms and ranches. This can be a bitter pill to swallow.
Because the number of people that the Federal Estate Tax affects is so small, it isn't a significant source of income to the Federal Government, which leaves one fundamental question:
Is it good public policy to try and avert dynasties through taxation as a penalty?
There are arguments on both sides, but who's right? Only time will tell.
Steve Cook is a estate planning lawyer at Cook & Cook. Although his main office is located in Mesa, Arizona, he represents clients throughout the Phoenix, Arizona Metropolitan area including the following east valley cities: Scottsdale, Paradise Valley, Tempe, Chandler, & Gilbert.
