Kill Grandma? 2010 and Estate Tax Repeal


Congress failed to renew the estate tax and, as of January 1st, it is repealed. Will greedy heirs pull the plug on their parents and grandparents?

Will the life insurance industry experience a sudden spike in claims? Will Congress retroactively reinstate the estate tax? Who knows?

Estate Tax Repeal

For 2010, the estate tax is eliminated. In 2009, it applied to estates of more than $3.5 million ($7.0 million for couples). The President supports the 2009 exemption, but so far, Congress has failed to act.

Watch out: In 2011, the tax comes back with a vengeance, hitting estates worth more than $1.0 million, a potential disaster for many taxpayers with modest estates.

Capital Gains Tax

The new law’s dirty secret: A capital gains tax has been substituted for the estate tax. For example, if a decedent purchased 1,000 shares of stock at $1.00/share now worth $125/share at death, a later sale for $125/share produces $124,000 in capital gains. Under the old rules, an heir inheriting stock at $125/share paid capital gains tax on gains above $125/share.

Note: Complicated procedures may provide some relief. See: my Hot Topics Article for details.


Repealing the estate tax and substituting a convoluted capital gains tax makes no sense. A permanent exemption of $3.5 million, indexed for inflation, with a maximum rate of 40-45%, should be enacted.

Let’s see if Congress will make it a reality and calm the fears of wealthy seniors with money-grubbing heirs.

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