The Future of the United States Estate and Gift Tax

Now that the Presidential election is over it is appropriate to update you on the status of the Estate and Gift Tax as we look ahead to the year 2013. We are in a similar situation as existed in 2009 in that the current Estate and Gift Tax provisions are due to sunset on December 31, 2012. The effect of this sunset will be different this time. In 2009 the sunset was followed by a year in which the US Estate Tax went completely away. This time, if Congress takes no action the US Estate Tax will immediately revert to the same exemption level and maximum tax bracket as existed in 2001: $1,000,000 exemption and a maximum tax bracket of 55%, as opposed to the current exemption of $5,000,000 and maximum tax bracket of 35%.

As you can see, the effect of this reversion to the 2001 provisions is dramatic. There are many estates that would have little concern over the US Estate Tax with a $5,000,000 exemption in place, but definitely have a concern if the exemption is only $1,000,000. Remember that for US Estate Tax purposes, the face value of life insurance that you own as well as the full amount of all funds in retirement plans and IRAs count toward the total on which the estate tax is assessed.

Here are some ways in which you can be proactive in the days and months to come:

1. Pay attention to news releases discussing Congressional action on the Estate Tax. We will do our best to keep you apprised of any news we become aware of in this regard.  Based on past history it is doubtful that anything will occur before the sunset date at the end of this year.

2. If you have already given more than $1,000,000 in gifts and were planning furthergift giving, you should consider the making of additional gifts before the end of 2012 (assuming, of course, you have the means to do so). While it is not absolutely guaranteed that all gifts made under the $5,000,000 exemption will be grandfathered, it will be very difficult for Congress to do otherwise.

3. Calculate the size of your gross estate, being sure to count all life insurance and retirement plan assets in addition to other assets owned by you, including your home and any other real estate. To the extent these aggregate to more than $1,000,000, you need to be sure that you have a plan in place that will make the most effective use of your exemptions and deductions. In this regard, we would be happy to meet and review any existing plans you have to determine if adjustments are necessary to minimize tax under the new scheme.

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