Pay It Now, Or They Pay Later

Legislators in Congress are reportedly considering creating a kind of Roth IRA version of the estate tax. “On The Money,” a blog of the congressional newspaper The Hill, recently reported that lawmakers are debating whether to let taxpayers opt to pay estate taxes in advance so their heirs owe nothing. One version being bandied about would set the pre-paid tax at 35 percent on estates valued at more than $3.5 million.

The pressure is on to address the federal estate tax before the end of the year, when the rate jumps to 55 percent on estates worth more than $1 million. (Last year, estates were taxed at a rate of 45 percent on values greater than $3.5 million, a record exclusion.)

If you die this year, of course, you pay nothing—thanks to the repeal of the estate tax for 2010 that was part of a vast array of sunset provisions in the Economic Growth, Tax Relief and Reconciliation Act of 2001. Of course, Congress could still pass a retroactive estate tax for 2010.