07 October 2005

Who Pays The Estate Tax?

This IRS report has more information than you would ever want to know about who pays the estate tax. A few notable facts:

* Less than 10% of assets owned at death by value in taxable estates are in any form of closely held business.

* Valuations discounts on interests in closely held businesses, which are the subject of a great deal of attention among attorneys (I just co-taught a class for advanced estate practioners on obtaining them last month), and among those who claim that the estate tax is too lax, account for just $3.6 billion in asset value reduction compared to a total $198 billion of assets report on estate tax returns.

* Less than 20% of Family Limited Partnership assets are business assets, however, strongly suggesting that in most cases that they are nothing more than devices with no meaningful purpose other than to avoid estate taxation (which we all new, but had rarely had presented so starkly). The vast majority of FLP assets are easily marketable or liquid assets, like publicly held stock, mutual funds, bonds, mortgages and investment real estate, none of which deserves a substantial estate tax discount.

* The special use valuation, which allows farmers to value real estate based on value as a farm without regard to development value, was elected on just 0.8% of estate tax returns. While it can be used for other businesses with real estate worth less in its current use than for development, less than 30 non-farm businesses in the country (3.5% of all special use valuations), did so in 2001. The qualified family owned business exclusion available in 2001 was used in about 1.2% of all estates (heavily overlapping with special use valuation estates).

* Decedents who had to file estate tax returns made $12.8 billion in charitable donations in 2001. About 14% went to religious charities, and many charitable gifts were hard to classify by type (e.g. gifts to charitable foundations with broad mandates).

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