For as long as there have been politicians, politicians have hidden their true purposes by giving laws names that disguise what they actually do. One such law is the estate tax.
It should be called the "death tax." Just as a sales tax is paid when somebody sells you something, and an income tax is triggered when you earn income, the death tax comes when you die. So rather than conjure visions of IRS grave robbing, the politicians named it the estate tax.
When Congress at the end of last year voted to keep the Bush-era tax rates in place through 2012, it made one huge exception: It voted to increase the death tax from zero to 35 percent for the next two years. This will apply to all estates valued at more than $5 million. Beginning in 2013, the rate will increase again, to 55 percent, on estates valued at more than $1 million.
Many estates, however, consist of business assets. And this looms large when business owners make plans.
If, because of the death tax, the Internal Revenue Service will claim more than a third of what you own after you die, you will act differently than you would if there were no estate tax.
You might, for example, purchase life insurance to cover the cost of the tax. Or you might put your assets in a trust. Money that is spent this way, however, is money that isn't being used to grow your business.
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