Recently, there was a report that President Barack Obama and Democratic legislators prepared to freeze the estate tax at the present level of $3.5 million exemption per estate, which would prevent the momentary one year repeal of federal estate taxes in 2010, with the tax returning in the following year with only a $1.0 million exemption, together with a tax rate of as much as 55%.
The U.S. Chamber of Commerce recently prompted President Obama to rescind the tax for excellent. The Chamber obviously senses that the tax threatens a small company whose proprietor dies, leaving a number of financial obligations behind, including the Federal Estate Tax concern, that might require the proprietor’s family to liquidate the family business.
Towards the end of January, Rep. Earl Pomeroy introduced HR 436, which would top the federal estate tax exemption at $3.5 million and set the tax rate for estates that exceed that quantity at 45% (50% for estates between $10 million and $23.5 million). This part of the bill is amenable to the majority of people, assuming that Congress will not completely repeal the Federal Estate Tax, as the U.S. Chamber urges.
The issue with the expense is that the law would be changed to not allow an appraiser to take any discounts for a minority interest or lack of marketability in an entity that is not actively traded. If you own a 10% interest in a partnership, your estate would report that you owned that 10% and worth it at 1/10th of the overall reasonable market value of the underlying assets, even though you do not have any control of the collaboration and do not have the capability to offer your interest. If you did have the ability to sell your interest, the prospective purchaser would probably provide you less than 1/10th of the fair market value of the underlying properties, given that you do not have control and there is a restricted market.
This indicates that your estate will reveal the full 1/10th of the complete fair market value of the underlying assets, even though if such asset were sold, your estate would be paid less for it.
While making use of discount rates has been a topic of abuse in certain cases, it is apparent that discounts ought to be enabled to mirror financial reality in following what a willing purchaser would pay a prepared seller where there is a minimal market for the interest and no control. Ideally, this part of the expense will be changed prior to it becomes the law of the land.