The death of George Steinbrenner on July 13, 2010 serves as an interesting study into the effect of the temporary repeal of the federal estate tax – and the failure of Congress to correct the problem before the end of 2009.
In 2001, Congress enacted the “Economic Growth and Tax Relief Reconciliation Act of 2001” (“EGTRRA”) which both gradually increased the amounts which can be exempted from federal estate tax and lowered the rates at which estates would be taxed. Under EGTRRA, the federal estate tax was “repealed” on January 1, 2010. However, there’s a problem: EGTRRA “sunsets” on January 1, 2011 – returning the federal estate tax with a vengeance. Specifically, the amount that could be exempt from the tax in 2009 was $3.5 million and the top rate of tax was 45% - if Congress fails to act, the estate tax returns in 2011 with a top rate of 55% and an exemption amount of $1million.
If Mr. Steinbrenner had died before January 1, 2010, his estate would have been subject to the federal estate tax rate of 45% on all amounts over $3.5 million – owing up to $493 million in federal estate tax.
In contrast, his death in 2010 means his estate avoids a federal estate tax entirely. Rather, his assets are only subject to a capital gains tax, and only to the extent that his heirs sell assets they inherit from Mr. Steinbrenner for more than Mr. Steinbrenner’s adjusted basis in those assets.
Of course, that assumes that heirs of the Steinbrenner estate will liquidate their inheritance – and there is no evidence to suggest this is the case. No capital gains tax is due and owing unless and until an asset is sold. The heirs of the Steinbrenner estate could presumably enjoy the fruits of Mr. Steinbrenner’s labors for many years to come – without ever paying anything more than income taxes from the income generated by the assets.
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