The US House of Representatives voted earlier this month to permanently extend the estate tax by a vote of 225-200. Only Democrats voted for the bill, with 26 Democrats joining Republicans in voting against it.
The House plan would extend the 45% tax on estates with net asset values of over $3.5 million. With a little estate tax planning married couples are usually able to exempt up to $7 million in net taxable assets. Overall, far less than 1 percent of estates fall into this category. Under the proposal very few estates of reverse mortgage borrowers will be subject to this tax.
Under the current plan, the estate tax is set to expire in 2010, only to come back in 2011 with a maximum tax rate of 55%. It will impact estates with net asset values of more than $1 million, affecting middle and upper-middle class HECM borrowers. As a result, the House plan can be seen long-term as lowering the tax.
“If nothing is passed, starting in 2011, a significant percentage of the estates of middle class seniors will have taxable estates over $1 million dollars and will be subject to the estate tax,” said James E. Veale, CPA, MBT, and Senior Vice President of Security One Lending.
“If this occurs, a reverse mortgage can become a very useful product for estate planning purposes. It can provide liquidity to fund such things as gifts, ILITs, and current charitable donations while at the same time creating unique interest deduction opportunities with the balance due at the time of death eligible as a deduction against estate assets up to the value of the home securing the reverse mortgage.”
The Senate has not visited the estate tax issue yet, as it is currently embroiled in the health care debate. For the bill to become law, it must be approved by both the House and the Senate and signed into law by the President.
Write to Reva Minkoff