(Forbes) — The estate tax is dead! Long live the estate tax!

Like a Phoenix flaming on the political wind, only to extinguish, then burst anew, this now-you-see-me, now-you-don’t tax is overlooked only at the peril of lasting prosperity.

For exposed families, the estate tax can be a devastating blow to generational wealth, from which fortunes never recover.

Recent changes in tax treatment have induced a false sense of immunity in many families and their advisors, to the point where healthy respect for the ravages the estate tax might visit on family wealth has waned, if not disappeared.

This can be a huge mistake for several reasons.

It is true that the expansion of the tax free amount to about $11 million ($22 million for married couples) might seem to give endless breathing room to all but the richest families, but it is important to remember that these lofty exemptions have a short fuse, and will drop to half (about $5.5M per individual or about $11M per married couple) for those who have the misfortune to survive past 2025, when the temporary exemption levels sunset.

This sudden shrinkage in the tax-free amount may catch many families unawares, and what seems like an immune estate now – say $8 million – with modest growth (7%) can grow to a taxable sum of almost $16M in a mere 10 years. In 25 years, an estate on the order of $35M is reasonably forecast, with a lurking tax due of some $10M under current law.

Worse, nothing is so certain in tax as change, and there is no reason to believe that new Congresses may not change to far more oppressive policy – perhaps to catch a populist “soak the rich” wave into extended office – in the years ahead, and possibly before 2025 even.

Those protective of their purse strings would be wise to recall that the estate tax was initially enacted, back in the original Robber Barron days, not to raise Federal revenue, but to throttle the perpetuation of vast family fortunes.

Could such a theme return a century later?

The answer may be blowin’ in the populist wind. Even absent a redistribution bent, mere fiscal pressures – forget not the soaring deficits, and the looming Social Security/Medicare train-wrecks  – could well drive Washington into the revenue-scramble mode, and a tax that will impact only a small fraction of the electorate, like the fat cats reading this article.

To appreciate what a blow such a turn might deal with your legacy, reflect that not so long ago the individual tax-free amount was a mere $600,000, and that without jumping through some arcane hoops, married couples did not automatically get two exemptions as in the examples for current law above, but just one!

The law actually required that if the spouse was the primary beneficiary, half of the tax break was forgone.

One might suggest that the perennial reports of the estate tax’s demise – or relative toothlessness – are greatly exaggerated, at least for those expecting to draw breath for more than a few short years. Sadly the tonic, such as using relatively simple devices such as Family Bank Ongoing Trusts, can reasonably render many otherwise taxable estates tax free for generations, without unreasonably burdening ma and pa who might wish to use their dough to make merry and live well for a long, long time.

Such devices, while simple, are often not employed by even high-dollar advisors to the well-heeled, but that is grist for another article.


BKA Financial, LLC.

244 W. Water St., Suite 200
Elmira, NY 14901


BKA Financial, LLC.

Phone: (607) 732-3050
Fax: (607) 732-3904


BKA Financial, LLC.