Estate tax is alive and kicking, despite rhetoric about killing it
Is the "death" tax in its death throes? A majority of House members are co-sponsors of a bill to place the federal estate tax on the extinct tax species list. House Ways and Means Committee Chairman Bill Archer (R-Tex.) included a 10-year phaseout in his massive tax-cutting bill.
But don't play taps for it yet. When Archer meets with his Senate counterpart, Finance Committee Chairman Bill Roth (R-Del.), to hammer out a compromise after Labor Day, he'll find Roth has lots of other uses for that tax-cut money. And no tax bill will become law without the signature of President Clinton, who is even less inclined to give back billions of dollars to rich dead folks.
Clinton is much more willing than he was a few months ago to sign some type of tax cut. So a degree of estate-tax relief is still possible this year. But it is likely to be targeted to small businesses and farms.
Even though many trucking companies are small businesses, most of them may not get help. The last time Congress tackled the estate tax, in 1996, it wrote an extremely complicated rule aimed at helping businesses that stay in family hands. All other estates benefited only from a very gradual increase in the "unified credit," the exemption for the first $650,000 of taxable estate (rising eventually to $1 million).
The 1996 changes are the best bet for what the next round of relief will look like. The family-business exemption and the generation-skipping transfer tax may be simplified and liberalized a bit, and the unified credit will probably reach the $1-million mark faster, and may even go above it. These steps would help many more people, including those who are less able to cope with complicated business-depleting taxes, than would across-the-board relief, which provides disproportionate aid to the largest estates.
Trucking stocks have been one of the worst-performing categories over the past year, down 6% while the Nasdaq Index was up 43%. Nevertheless, an eight-year economic expansion and an "irrationally exuberant" stock market have left many trucking executives with a high enough net worth that they should visit a tax planner before the ink dries on the next tax bill.
There are plenty of steps you can take to minimize estate-tax woes. Which ones are right for you depends on whether most of your wealth is tied up directly in your company's fleet, real estate, company stock, or is more diversified.
Equally important is your family situation. Are you married? Do you want to leave the company to family members? If so, will the assets qualify for the limited relief available under current law? Do you have enough other assets to pay the costs of passing on the estate?
Also keep state taxes in mind. State inheritance and estate taxes range from nonexistent to stiff, and you should take them into account, especially if you plan to relocate the firm or retire to another state in the near future.
One way to cut down on future estate taxes is to make use of the gift-tax exclusion. Individuals can pass on $10,000 (and couples $20,000) annually to as many other individuals as they wish. (These amounts will gradually go up over the next decade under current law and may get a further boost from the next tax bill.)
The bottom line: Expect estate-tax relief only for the smallest estates and perhaps for closely held businesses. Even that help is likely to be stretched out over many years and otherwise limited. Better to look now for traditional estate-tax planning tools. There is one consolation, though: Being alive and well-off still beats the alternative.