Dying Is Tax Free in 2010

This year and this year only, dying is tax free. For the first time since 1916, there is no estate tax—assuming Congress doesn’t renew the tax retroactively.

However, in 2011 current law will reset the death tax to its 2001 level of 55 percent, with a $1 million exemption. In 2009, the estate tax was 45 percent with a 3.5 million exemption.

There is one certain way to avoid the estate tax: If you spend most of your money before you die, you won’t have to pay an estate tax.

But if you use your wealth to start a business and add to the economy, the estate tax penalizes you for that. It’s one perverse result of taxing some income twice.

According to a study by Douglas Holtz-Eakin and Cameron Smith, eliminating the estate tax permanently would raise employment by 1.5million.

In this video, an estate planner explains how the death tax hits small businesses particularly hard:

by Alex Adrianson