When Eldon Reed died on July 22, the 79-year-old man left his son 1,000 acres of farmland in Lee County and nearly $600,000 in cash.
"It will take all the cash that he had to pay the estate taxes," said Stanley Reed of Marianna.
The above is the beginning of an article written by Mark Friedman of the Arkansas Business Journal November 7. The article can be found here.
Reed, 54 and president of the Arkansas Farm Bureau, has long pushed for the permanent repeal of the controversial estate tax.
"Nothing is going to happen [to the proposed repeal], which leaves us in total limbo having to explain a real tortured system to clients," Stan Miller an Estate Planning Attorney said. "[Clients have to] plan for a credit that's $1.5 million today, $2 million in January, $3.5 million in January 2009, and no tax in 2010 and a credit of $1 million 2011. So we're having to draft documents that take all of that in account, too." Miller said it's confusing for clients because "the ground rules ... are so wildly varied depending on what year you happen to die."
The Status
In late summer, Congress was expected to take up the estate tax matter, by either repealing it or changing the exemption to somewhere between $3 million and $5 million. The rate is also in question with rates from 15-50% being discussed. But with hurricanes Katrina and Rita and the Supreme Court vacancies, those conversations came to a halt and appear to have lost momentum. They may resume next year at the earliest but with it being an election year even that is uncertain.
Fewer than 1 percent of people who die are subject to an estate tax according to United for a Fair Economy, a Boston group that supports keeping the estate tax. And only three of every 10,000 people who die leave a taxable estate in which a family business or farm forms the majority of the estate. The organization also said the average small business is worth about $700,000, well below the level at which estate taxes are applicable.
Farmers
Reed, who is also on the American Farm Bureau board of directors, said a number of family farms have been hurt by the estate tax. He said his father's estate is worth between $2 million and $3 million, but most of that value is tied up in land. "The money that you've taken to buy these assets, to buy the land, that money has already been taxed once," Reed said. "And when you die, it's taxed again ... There are just more equable ways in taxing wealth than having to tax twice and sometimes three times."
Reed said he and his father had bought the land together over the past 30 years and had planted cotton, rice and soybeans there. Reed, who left his law practice to work with his father on the farm years ago, hasn't figured out what he owes for estate taxes yet, but it could be more than $600,000.
"[My dad] saved and scraped until the time he died to be able to have enough to pay the estate tax," Reed said. "He was fortunate enough to pass [the farm] on."
In 2003, 179 Arkansans paid the federal estate tax, raising $125.76 million, she said. Nationwide, 30,627 paid the tax and generated $20.65 billion in revenue.
Patten, of the American Family Business Institute, said some business owners are spending $100,000-$300,000 a year in insurance and attorney and accountants' fees to protect their estate from the tax. (The estate tax has been called "a tax on the uninformed.") If the tax is repealed, Lincoln said, small-business owners won't have to spend the money to avoid the tax but can reinvest that money in their business and hire more workers. Taxes generated from more people working could replace the lost revenue from the repeal of the tax, she said.