For Island Estates, Tax Cuts Worth Millions

Dec. 17–There may be nowhere in the country more interested in this week’s congressional debate in Washington over estate taxes than the wealthy neighborhoods of Palm Beach County and other well-heeled South Florida enclaves.

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Many millions of dollars in local pockets are riding on the vote over just how much tax should be paid on large inheritances.

“I believe this county is watching the bill extremely closely,” estate planning attorney Jamie Pressly of West Palm Beach said this week.

“It’s a huge deal,” said R. Marshall Jones , a West Palm Beach life insurance consultant specializing in estate planning.

The debate continued late Thursday in the House, between Republicans who want the rich to keep as much of their cash as possible and not have to pay it in what they call a “death tax” and liberal Democrats who say the rich don’t need an extra tax break, especially one they predicted will increase the federal deficit without helping to boost the economy.

The Senate on Wednesday had passed its version of the tax-cut compromise shaped by the White House and the GOP congressional leadership. That agreement included a provision, pushed by GOP lawmakers, that would set the estate tax at 35 percent on all fortunes over $5 million for individuals and $10 million for couples.

Many Democrats in the House were incensed. They said that was the lowest estate tax rate in many decades and was unnecessarily generous to the rich. They wanted the estate tax set at 45 percent and they wanted it to kick in for fortunes of $3.5 million per individual and $7 million for couples.

But President Obama and GOP congressional leaders said they would not accept large changes in their bill.

“It’s enormously important here,” said accountant Richard Rampell of Rampell & Rampell of Palm Beach. “In Palm Beach, there are a lot of estates over $7 million. That is a mid-class estate in Palm Beach.”

The three estate planning experts explained that under the Senate plan, if a couple is worth $10 million and both die, the entire fortune can be passed to heirs without estate tax being collected. But if the House Democrats had their way, only $7 million would be exempt and the tax on the remaining $3 million would be 45 percent or $1.35 million.

“And for people who are worth $100 million, then the difference between 35 and 45 percent makes a huge difference,” Pressly said — potentially $10 million extra in taxes.

The estate planners said that there are different methods, including the use of trusts, to try to reduce the estate tax paid and that many wealthy people avoid paying portions of that tax. But they also said that it is difficult to preserve very large estates — for example, over $10 million — without paying some estate tax, gift tax or costs that come with establishing different kinds of trusts.

One vehicle for protecting an estate, and one that is used by many wealthy locals, is the Irrevocable Life Insurance Trust that bequeaths money to heirs. But it requires that the buyer pay premiums, so that part of the wealthy person’s money goes to an insurance company instead of to the government as estate tax.

Other vehicles are Limited Family Partnerships and Credit Shelter Trusts — often used to provide for a surviving spouse — but estate planners say those options only offer partial protection from taxes for large estates.Either of the provisions that were being espoused would be a reduction in the estate tax scheduled to take effect Jan. 1 — 55 percent tax on estates larger than $1 million for individuals and $2 million for couples.

The GOP argued all along that any rise in taxes would injure the economy; House Democrats said their compromise was fair and excoriated the Senate proposal.

Using data gathered by the Joint Committee on Taxation, House Democrats said the Senate proposal would benefit an estimated 6,600 of the richest individuals and families in the U.S. per year over the next two years, for average savings of about $1.8 million per estate.

The Democrats said the wealthy don’t need that break and that it will add $25 billion to $28 billion to the nation’s budget deficit over the next two years, which less wealthy taxpayers would eventually have to help pay off. Along the way, gaping income inequalities in the country would get even wider, said the Democrats.

On the House floor Thursday, Rep. Stephen Lynch , D-Mass., attacked the Senate proposal and paraphrased Winston Churchill in doing so. “Never have so many done so much for the benefit of so few,” he said.

The White House Office of Management and Budget said polls indicated that most voters want there to be an estate tax, believing that an exemption of between $2 million and $3.5 million is fair.

Staff researcher Niels Heimeriks contributed to this story

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