Poor Response for the 2011-2012 Estate Tax Break
A tax deal between the Obama administration and the Republicans in Congress has lead to an adjustment on Estate Taxes. The new Estate Tax has increased the amount of tax-exempt estate wealth from $2 million to $10 million and has also reduced the tax rate for the funds above this $10 million limit. However, the taxpayer allocating the estate will need to pay Capital Gain Taxes for any profits made from the estate while in their lifetime. The idea of this tax incentive is to push up the amount of funds set aside for inheritance by the wealthy in the U.S. Already, by the end of 2010, a majority of the wealthy people in the U.S had already taken advantage of the former limit and put aside the tax-free amount of $2 million towards the estates of their children and grandchildren.
However, the new increased limits on the amount of estates to go tax free is only available for 2 years and the benefit lasts only until the end of 2012. Since many of these estate products need extensive planning and proper structuring, estate planners say that anyone interested in taking advantage of the tax break needs to do so as soon as possible. However, even as late as May 2011, most of the wealthiest individuals who are expected to take advantage of this tax break have done nothing towards increasing their estates. Estate planners and investment advisers are reading a different attitude from the rich in America as far as increasing their estates. Some of the reasons that are holding back the rich from taking up the opportunity from this new tax break are:
Uncertain Economic Times
With the global economic downturn between 2007 and 2009 and the uncertainties of the economy konsultan pajak jakarta, even the very rich are no longer sure about the security of their wealth. Since estate funds set apart to take advantage of the tax break are inaccessible to the individuals putting up the funds, they cannot resort back to that wealth in later times if need be. Therefore, if another economic dip erodes a huge chunk of their wealth, they may need the funds that they would otherwise have set aside for an estate. Therefore, as opposed to locking such funds in an estate, they would rather keep the money to themselves and have their children pay whatever taxes will be due after they die.
Incentive to the Beneficiaries
Another reason that is making the rich hesitate from taking the tax break offer is the fear of a negative impact that such an estate can have on their children. Many parents feel that if their children know that they will inherit millions of dollars from their parents, they may be lazy or lack ambition and therefore, such estates would be counterproductive in building wealth. There are various plans that have been set up to try and put incentives to those inheriting estate funds. This includes having an income-matching-incentive where children are paid from the estates, as much as they make in wages. However the downside of this approach is that it may limit estate allocation for a child desiring to be a volunteer, philanthropist, or any other non-profit worker. It can also take away the talents and gifts of the child, say by turn, a community worker, into an insurance broker. Other plans include having one's spouse as part of the estate beneficiary to try and ensure business continuity after one dies. One can also set the estate such that the funds go to a charity if the children are unable to profitably manage the wealth.
Either way, the option that the rich take is more of a personal decision. However, for anyone seeking to take advantage of this tax deal, he or she will most likely need to set aside time off from his or her busy schedule and meet with an estate planner before the tax break time limit lapses.