Exactly what involvement do you have in the estates of HECM borrowers? I find your claims very interesting!

While I strongly agree most HECM borrowers will never face the estate tax, I have met who reasonably expect their estates will. In one case the borrower has over $9,000,000 of value in real estate, investments, pensions, and other assets even in today’s market. If the unified credit goes down to only shielding $1,000,000 of taxable assets, I know more HECM borrowers to whom this tax will apply, including my neighbor whose home alone is worth over $800,000.

However, HECM borrowers are hardly the concern. It is proprietary reverse mortgage borrowers who will most likely be hit and at higher percentages than most decedents. Among these borrowers the chances of being subject to the estate tax rise dramatically and can expect to be much much higher than the percent of estates generally, which is estimated at 0.3% (yes, less than 1%) today.

Just as income tax implications from foreclosure were laughable when I first came into the industry, this topic probably seems just as laughable today. However, just as foreclosure seemed unlikely in late 2004, so does the return of proprietary products to many today.

The estate tax regime is much different than you imagine it. First of all estates that have a taxable estate of $100,000 incur a tax due of $23,800 today. However, the unified credit offsets that amount in exactly the same way it does for the estate of Michael Jackson who passed away this year.

Our current structure starts at a 18% rate and graduates to 45% on the taxable estate exceeding $1,500,000. The unified credit is $1,455,800 for 2009 and applies directly against the tax thus shielding the first $3,500,000 of the taxable estate from the estate tax.

The estate tax also permits heirs to receive a new tax basis in the assets they inherit. Without it, they would inherit the tax basis of the heir (or in certain cases, if less the fair market value of the asset as of the date of death). As in Canada such a regime would push the estate tax into the income tax making the heirs pay at least as much in income tax as the decedent would have paid. Most income tax practitioners believe the increased revenues to the federal government would be enormous. However, it would be the poorest Americans paying the greatest share of this increased tax.

Please forgive me if I do not agree with your point of view. Most large estates have sufficient planning to avoid the estate on a large portion of their estate. For example, due to his charitable trust, Bill Gates estate will pay little estate tax even though his heirs will live comfortably administrating that trust.

Married couples will generally avoid any estate tax on assets exceeding $7,00,000 if the current tax law is extended indefinitely into the future but a little estate tax planning is required to get from $3,500,000 to $7,000,000.

Plain and simple the etate tax is a redistribution of wealth upon whom it applies. It may be socialistic but it is also reasonably fair.