Close Close

Portfolio > Alternative Investments > Real Estate

CBO: Insurance No Substitute For Estate Ta Repeal

Your article was successfully shared with the contacts you provided.

Only about 6,800 estates that included farms or small businesses paid federal estate taxes in 2000, and the total might have been less than 700 if the current $1.5 million exemption amount had been in effect.[@@]

Officials at the Congressional Budget Office have presented those findings in a report on the effects of the federal estate tax on estates that include farms and small businesses.

Robert McClelland, a former CBO tax policy expert, wrote the report using figures and analyses prepared by other CBO staff members.

In 1999 and 2000, the tax years included in the study, “the vast majority of estates, including those of farms and small-business owners, had enough liquid assets to pay the estate taxes they owed,” McClelland writes in the estate tax report. “However, estates involving farms or small businesses were less likely than the average estate to have sufficient liquid assets to cover their estate taxes.”

In 2000, about 8% of the farm estates that owed estate taxes and 5% of the family-owned business estates that owed estate taxes appeared to have estate tax bills that exceeded their liquid assets, McClelland writes.

Many farm and business owners may have used a variety of strategies, including bequests to spouses, to reduce the size of their taxable estates, and others may have used life insurance to cover the cost of any estate taxes, McClelland writes.

But, when business owners use life insurance to protect estates, “predicting what the value of the business will be at the time of the owner’s death may be difficult,” McClelland writes. “The proceeds from life insurance are themselves subject to estate taxes, unless owners employ devices such as an irrevocable life insurance trust.”

McClelland writes that irrevocable life trusts must be used with caution. A business owner cannot borrow against such a trust, even if the survival of the business is at stake, he writes.

The full text of the report is on the Web at //


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.