Published June 23, 2005

would be worth what it is today? If you bought your home twenty years ago for $50,000, you probably are living in a $750,000 asset.

If you started work twenty five years ago and have participated in a profitsharing plan, you may have another $400,000 in your account. Surprise - you’re a millionaire.

Of course, this does not include other assets you may have accumulated or assets for your spouse’s accounts.It does not include inherited assets as well.

My point is that it is relatively easy to accumulate a seven figure net worth.

Wealthy families have always understood that with wealth come responsibilities like estate taxes. So who are the “wealthy?” If you’re subject to estate taxes,you might be considered wealthy.

Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001 which includes a gradually increasing estate tax exemption.It started at $675,000 and has risen to $1,500,000 for estates settling in 2005 and 2006. Under the current law, the exemption will rise to $3.5 million in 2009 and for 2010; there will be NO estate tax. However, in 2011, the estate tax will be restored with an exemption of only $1,000,000.The tax rate for assets over $1 million begins at 41 percent and rises to as much as 47 percent. Ouch!

In the spring, the House, approved legislation that would permanently repeal the estate tax. Forty-two Democrats joined 230 Republicans to pass the bill by a wide margin.

Similar bills have been passed by the house before only to be stalled in the Senate.

The Senate Republicans prefer a full repeal, but would accept a compromise that would exempt $10,000,000 of estate assets.This would exclude over 99 percent of estates in America from estate taxes.

It sounds like a popular bill, but not so fast. Some Senators feel otherwise. “This country is heading for a financial disaster.” said Rep. John Tanner (DTenn.). With mounting federal deficits, some are concerned that another loss of revenues would only add to the problem.

According to the Brookings Institute and Urban Institute, in 2004 about 19,000 estates will be subject to an estate tax and generate about $17.6 billion for the government coffers. That’s an average of $935,000 per estate. If the $10,000,000 exemption were in place only 600 estates would pay taxes.

One proposed compromise would keep the estate tax at current levels but exempt businesses and farms from the tax.

The current estate tax only affects about 2 percent of all estates but with the rise in the values of real estate and farming properties in the Sonoma Valley and through out the greater northern California region, my guess is that the percentage is much higher here.

Right now, passage of the permanent repeal is a toss-up.With tax revenues shrinking and with runaway government spending, I doubt that estate taxes will go away completely, but a compromise may push the burden on to the backs of the “truly” wealthy.

Notable Quote: “It's a game.We [tax lawyers] teach the rich how to play it so they can stay rich -- and the IRS keeps changing the rules so we can keep getting rich teaching them.” -Author John Grisham (The Firm)

Tom Mills & Jonathan Gates are partners in Mills, Parker & Gates LLC, a registered investment advisor. If you have questions or topics, you may call or write Tom or Jon at 809 Broadway Sonoma CA 95476 (707) 996-7800, FAX (707) 938-8668 or e-mail them at suntrm@aol.com.