Federal Estate Taxes
Under capitalism, man exploits man. Under communism, it's completely the opposite. - V.I. Lenin
What do communism and estate taxes have in common? This is not the set-up for a joke told at an estate planners' convention. As you read on, you'll find that the question is very relevant and its answer is not even close to being funny.
For those who may not be students of political science, communism involves a totalitarian system of government whereby private ownership is discouraged in favor of a redistribution of wealth by the government. It may shock you to learn that our federal estate tax system does the very same thing. This may also seem particularly ironic since we spent so much of the 20th century fighting the evils of the "red menace" domestically and abroad.
Initially, the federal estate tax (created in 1916) and the gift tax (created in 1924) were set at a very low rate. Then in the early 1930's, the Franklin Delano Roosevelt Administration proposed a tax system that would give the federal government more control over the distribution of wealth after somebody died. For the next 40 plus years, this translated to the government "appropriating and redirecting" (see also skimming and usurping) a huge chunk of wealthy peoples' assets via a 70 percent marginal death tax rate.
For those that like them, there is a bright side to this. At least our government managed to accomplish the whole process without a bloody revolution!
Over the years, there have been some modifications to the estate tax system, but like the main villain in a teenaged slasher movie series, it refuses to die. Most recently, the tax laws have been changed to gradually phase out the estate taxes between 2002 and 2009, with the tax being eliminated entirely for one year in 2010. Unless Congress passes additional legislation between now and then, however, the estate tax will rise from the dead in full force at its 2001 level.
Since it continues to plague taxpayers, we present the following sections for your education (if not necessarily your enjoyment):
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