Wednesday, August 05, 2009

Estate tax resurrection

The Leimberg estate planning subsription service reports that, in its quest for more revenue from "the rich," Delaware has restored its estate tax, which had been repealed in 2005 with the final lapse of the federal death tax credit.

The "temporary" estate tax applies to Delaware residents who, through a failure of planning, die after June 30, 2009 and before July 1, 2013. Tax rates are derived from the now-repealed federal death tax credit table. The filing threshold is linked to the federal estate tax exemption, but won't go below $3.5 million in the unlikely event that Congress fails in the task of estate tax reform this year. Interestingly, it is not clear from the legislation that the full $3.5 million will be exempt from tax if the threshold is breached. According to the article, the Delaware taxing authorities are expected to clarify this in the taxpayer's favor.

When Maryland imposed a "millionaires surtax" a few years ago, the number of millionaires mysteriously dropped by fully a third in a single year. Some of them may have moved to nearby Delaware, because it was a tax haven when compared to Maryland. If so, the trend is now likely to slow.

Could Delaware's action be a harbinger of what's to come in other tax-hungry states, most notably California?

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