As the federal government has just enacted its latest COVID-19-related federal stimulus act -- this one to the tune of $1.9 trillion -- estate planning attorney Samuel B. Ledwitz wants to remind you that money is not free.
Ledwitz, who is the founding partner of Bezaire, Ledwitz and Associates, an estate planning law firm, said the problem is that the bill balloons the federal deficit -- something that is already at historic highs -- and can handicap economic success not far down the road.
“We’ve had the federal deficit -- which was already high at about $19 trillion -- shoot up to about $25 or $26 trillion,” Ledwitz said. “The relief packages surrounding COVID-19 have exacerbated the debt by trillions of dollars. The money being infused into the economy doesn’t magically show up. It’s from the federal government. You and I as taxpayers, we get to pay for it later. There’s no free money.”
So, what happens next? Ledwitz explains.
“That debt has gone up greatly and has got to be paid down somehow,” he said. “How do we do that? Through taxation. With an alarmingly growing debt, the federal government will have no choice but to raise taxes. It’s just a question of who will they raise taxes on and how much will they raise.”
Ledwitz also said the government has a convenient target whenever it is time to raise taxes.
“In history, when the government wants to raise taxes, there’s always the idea of taxing the deceased,” he said. “They don’t vote. Death acts as a very popular way of raising revenue, or at least giving the appearance that we’re raising money. Compared to the federal income tax, the estate tax doesn’t nearly raise as much money. But it gives the appearance that you’re taxing the rich, so it is a popular thing to do.”
Currently, the estate tax sits at $11.6 million for an individual and $23.2 million for a married couple, Ledwitz said. He added that value might be in jeopardy.
“The current administration has made it known that is wants to bring that number down significantly,” he said. “The question is do they bring it down to around $5 million -- which is where it was during the Obama administration -- or does it go lower than that?”
Ledwitz also said that wherever the amount falls, it is up to individuals to make sure they have the most appropriate estate plan for their individual situation.
“The net result is people need to be vigilant on their own estate plan to ensure that kids and loved ones get their money,” he said. “After all, you’ve already paid income tax on this money you’re leaving to other people. Why is it getting taxed again? That is the fundamental question.
"There are at least three different taxes you can encounter and they’ve conveniently been found to be constitutional.”
What worries Ledwitz most when it comes to enacting taxes is that what might seem as a simple, well-meaning tax at first snowballs over time.
“Things that start off small with the government, like a new tax, end up huge down the road,” he said. “The original tax rate set in 1916 was to one half of 1 percent. Now there are 3,000 to 4,000 pages on how to get to that rate. And the rate is, of course, slightly higher.”
He added that it is imperative that you seek professional advice to make sure you are paying the appropriate amount of tax.
“We always have to be vigilant on paying the minimum amount of tax,” he said. “You need to defer, delay, or just not pay at all -- of course, using legal avenues -- and that’s why having a vigilant tax and estate planning attorney is so important.”
This article originally appeared on Fontana Herald News.
