George Steinbrenner had great timing. He was born on the Fourth of July and died in 2010, a year that there was no estate tax in the country. If Steinbrenner had died in 2009 when the estate tax threshold was $3.5 million and the rate 45 percent, the billionaire’s heirs would have had to pay the government roughly $500 million. Although they were not entitled to a step-up in basis, any capital gains taxes owed on property they may decide to sell is relatively insignificant compared to their estate tax savings. The most important thing is that they were not forced to sell Steinbrenner’s most significant asset, the New York Yankees.

How is estate tax calculated?

Estate tax does not apply to everyone. It is essentially a tax on the transfer of wealth. If you pass away in 2014 with less than $5,340,000 in assets (after deductions), there is no federal estate tax due. If you pass away in 2014 with $10,340,000 in assets (after deductions), the first $5,340,000 is exempt from federal estate tax and the balance of $5,000,000 is taxed at up to 40 percent.

The following chart shows the amount of a person’s estate exempt from the estate tax since 2005:

Year of Death Amount Exempt from Estate Tax Maximum Estate Tax Rate
2005 $1,500,000 47%
2006 $2,000,000 46%
2007 $2,000,000 45%
2008 $2,000,000 45%
2009 $3,500,000 45%
2010 $0 (with no step up in basis) or $5,000,000 0% or 35%
2011 $5,000,000 35%
2012 $5,120,000 35%
2013 $5,250,000 40%
2014 $5,340,000 40%

As the chart shows, the federal estate tax exemption has been rising steadily from year to year. A person who passed away in 2005 with a $6 million estate had a far larger amount of wealth go to the government that someone with the same net worth who died in 2011.

At Armstrong & Lamberti, PLLC , we design estate plans for individuals and couples with small, medium and large estates that help to reduce or eliminate estate taxes. Contact our office for a free consultation.

Anthony Lamberti on G+