Home Estate Planning Audit Worries – Your Surviving Family may be in for a Suprise

Audit Worries – Your Surviving Family may be in for a Suprise

by My Journey to Millions

I was reading my fav. magazine today, Trusts and Estates and came across an amazing article.  Trusts and Estates Magazine has been around since the early 1900s and is read by most of the Trust and Estates world – it costs $35 an issue, but luckily work picks it up!   The article titled, “The Audit Rate Is Skyrocketing” written by Richard A. Behrendt (the full article can only be read with a subscription so I will just highlight it).  Before we get started, if you don’t understand the simples behind the so-called “Death Tax” check this past post.  Simply put if your assets are under $3,500,000 it is unlikely you will owe any federal estate tax (State tax is a whole other post!)  however, if you have assets over $3,500,000 that are being passed to non-spouse U.S. Citizen you’ll be getting banged out for 45%!

Mr. Behrendt provides a very succinct introduction to the article,

There’s an important — yet unspoken — phenomenon in the world of estate tax: As the number of estate tax filings has been decreasing nationwide since 2001, there’s been a corresponding increase in the Internal Revenue Service’s audit coverage rate of estate tax returns. Indeed, at least for the next few years, practitioners should change their assumption from “Federal estate tax returns may be audited,” to “These returns will be audited.” And of course that means all estate-planning attorneys and accountants should be more careful than ever before, when planning a client’s estate.

Audit Numbers for Estates

In 2007, the first year after the exemption was increased to $2 million, there were 38,031 federal estate tax returns filed nationwide…In 2010, the year after the federal estate tax exemption will have risen to $3.5 million, the IRS has projected that 17,500 federal estate tax returns will be filed nationwide.

If there are the same number of auditors (relax, it has been lowered in recent years) then these auditors will have double the time, and hence, more time to hit EVERYONE that comes across their desk (you don’t have to file if your Gross Estate is less than $3,500,000).

Your first question may be, why has there been a decrease in estate tax filings?  Because the amount you can pass to a non-spouse has increased from $1,000,000 in 2001 to $3,500,000 as of today.  So obviously…less people “qualify.”  This is the main reason why people arguing against a federal estate tax is ridiculous – only the top 2 or 3%9 of all Americans are going to get hit with it (luckily, my office is not like real life since most of the clients that come into my office are in the top 2 or 3%).

So, I am not sure how many people out there who read this blog are in that top 2 or 3%, but if you know someone that is let them know! Their family may be in for a surprise if their estate documents aren’t in order! 

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1 comment

Jason 02/12/2009 - 3:25 pm

Good observation on the percentage rise of audits coming to these people. I’m not close to being in that net worth category, but this is an important point for estate planning & tax attorneys to absorb.


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