Estate-tax repeal: the backstory

This man put forth a sucessful program for cutting income-tax rates. This man wanted to repeal the estate tax. Who was he? Andrew Mellon, the banker/industrialist turned Treasury Secretary.

You can read all about Mellon's effort, and learn why his aversion to estate taxation was influenced by the settlement of Henry Clay Frick's estate, in this article by Susan Murnane.

Will George W. Bush have better luck than Andrew Mellon had in the 1920‘s? Stay tuned.

Easing the Taxpayer's Burden is Expensive

David G. Klein dreamed up a great illustration for the Sunday New York Times feature on taxes. You can see only a thumbnail here, so I've posted a detail from a scan.

The Times cites projections that the cumulative cost of extending the Bush tax cuts, presumably including repeal of the estate tax, would grow to $1.3 trillion by 2015.

The cumulative “cost” of repealing the Alternative Minimum Tax would also grow to more than $1 trillion.

How do the Administration and Congress get out of this mess? Possibly by taking a serious swing at tax reform. If reform eliminated enough special tax breaks, Congress could vote for lower tax rates in a package that would raise more revenue. But even a “stealth” tax increase is probably too risky to consider before 2007.

Meanwhile, although the federal estate tax exemption has moved up to $2 million. note this warning in another Times article:

In more than a dozen states — including New York, New Jersey, Maine, Maryland, Massachusetts, Minnesota, Kansas, Nebraska, Ohio, Oklahoma, Oregon, Rhode Island and Wisconsin — there are still state taxes on estates worth under $2 million. There is a tax on estates in this range in the District of Columbia, as well.

Death and Taxes: the Blogs

Clever dudes, those guys at The Wall Street Journal. The Blog Watch in today's Technology Report features sites related to one or another of the two inevitables..

Tax sites mentioned include Tax Guru and Roth's Tax Updates.

Inexplicably missing: Joel Schoenmeyer's Death and Taxes — The Blog.

Could there be some movement on death taxes in 2006?

27 Senators have co-signed a letter asking that a vote on estate tax repeal be scheduled before Memorial Day this year.

Will there be a vote? Probably, there is plenty of polical support, and the House already passed an estate tax repeal. Will the estate tax be repealed? Doubtful, given today's deficits. Could there be a compromise? Certainly, there's plenty of room for a tax regime both sides could live with. But both sides appear to be happier having the fight.

A potential bomb for CRUTs is defused

Last year, IRS gave estate planners heartburn with Rev. Proc. 2005-24, which discovered a hitherto unknown potential defect in all charitable remainder annuity and unitrusts. The defect was the chance that a surviving spouse might elect a statutory share, that the share might include inter vivos charitable trusts, and so the spouse might ultimately get some assets from the charitable trust. The Service's remedy was to require the spouse to waive such rights, in writing, upon the creation of the trust. Failure to comply would mean no charitable deduction, even if the spouse never ultimately made a claim against the charitable trust.

A variety of problems with this remedy have been voiced by commentators. The snarkier ones have pointed out that IRS' own CRUT and CRAT forms don't address the "problem."

"We hear you," the IRS has now said. Last year's Rev. Proc. had an effective date of June 28, 2005 (earlier-drafted documents were in the clear). In Notice 2006-15 the IRS has now suspended the effective date, and in effect suspended the procedure itself until further guidance is issued. "The Service will disregard the existence of such a right of election, even without a waiver as described in Rev. Proc. 2005-24, but only if the surviving spouse does not exercise the right of election," it concludes. Hopefully future guidance will be more practical.

Which wealth-management clients are you looking for, Comfortable or Kinda Rich?

Here's a wealthy Wall Streeter's guide to the gradations of affluence, as recounted by Lee Eisenberg, author of The Number.

Which market segments are you targeting?

COMFORTABLE
The number
$1-million to $2-million

- A scaled-back lifestyle post-retirement that still includes dining and travelling modestly. A nice life, nonetheless.

COMFORTABLE PLUS
The number
$2-million to $5-million

- A scaled-back lifestyle post-retirement that still includes dining and travelling modestly. Add membership in a mid-priced club and, maybe, a small second home.

KIND OF RICH
The number
$7-million to $10-million

- People who like to stay at the Four Seasons and spend their time shuttling between expensive homes.

RICH
The number
$20-million

- Spend weekends abroad, belong to a gated golf community, charter private jets and party with wealthy people like Henry and Marie-Josee Kravis.