Keep your rich uncle on life support!

As Tom Herman reports in The Wall Street Journal (subscribers only), “The timeliest tax advice for thousands of the nation’s richest people couldn't be simpler: Keep breathing — at least until New Year’s Day.”

Don Weigandt of J.P. Morgan Private Bank in LA gave Herman illustrations of why the wealthy need to hang on until 2006:

Suppose someone who is single dies this year and leaves a taxable estate of a mere $2 million. The federal estate tax this year would be $225,000, according to calculations by Mr. Weigandt. But if that person lives until next year, the federal estate tax would be zero.

The rewards for survival get bigger as the size of the estate grows. Suppose a single person with a taxable estate of $5 million dies next year, instead of this year. The tax savings typically would be $255,000, says Mr. Weigandt. Or suppose someone with a taxable estate of $10 million dies next year instead of this year. The tax savings would be $305,000.

For someone with a taxable estate of $100 million, the federal estate tax typically would be $46,285,000. But if that person lives at least until Jan. 1, 2006, the federal estate tax would be only $45,080,000 -- a savings of $1,205,000.

There are other financial incentives to survive into 2006. The annual gift-tax exclusion is scheduled to rise next year, to $12,000 from $11,000, allowing wealthy people to move even more money out of their estates, tax-free.

Although the estate-tax issue often has been in the headlines over the past few years, the percentage of estates taxed by the federal government is very small. In recent years, for example, the number of taxable estate-tax returns represented only about 1.2% to 2.3% of total adult deaths each year, according to the Internal Revenue Service. But organizations such as the National Federation of Independent Business say those numbers are deceptive and that the "death" tax deserves to die. President Bush also has called for permanent repeal.

New IRS statistics show only 65,039 estate-tax returns were filed in 2004, says Martha Britton Eller, economist at the IRS Statistics of Income Division in Washington. That was down from 66,044 in 2003. Many estates weren't taxable. For example, of the 2004 total, only 31,329 -- or less than half the total -- were taxable, Ms. Eller says.

Most of these taxable estates represented the merely rich, not the super rich. For 2004, more than 22,200, or more than 70% of all taxable estates, were valued at less than $2.5 million. And only 1,328 were valued at $10 million or more.

Based on current law, the estate-tax exemption level is scheduled to remain $2 million in 2006, 2007 and 2008, then rise to $3.5 million in 2009 before vanishing entirely in 2010 -- only to return at the $1 million limit in 2011, unless Congress changes the law before then, as it probably will.

Copyright 2005 Dow Jones & Company, Inc.

Does your bank or trust company offer health club and/or home health-care services to the elderly wealthy in your market? Think about it!