Oct 5, 2012

Estate tax: eleventh hour drawing near

Here we are in the fourth quarter of 2012, and Congress has yet to decide the fate of the federal estate tax in 2013. Perhaps the results of the November election will permit us to peek into the legislative crystal ball. However, until Congress takes definitive action, that crystal ball will remain cloudy.

Under the current law, an individual is allowed to pass up to $5.12 million tax-free. With the right estate planning and tax planning, married couples can double that amount. For estates that do owe taxes, there is a 35% maximum tax rate.

On January 1, if Congress fails to take action, the current law will lapse. The exemption will then fall to $1 million per person, with a 55% maximum tax rate. If this scenario comes to pass and $1 million becomes the exemption in 2013, it's going to impact more than just the super-rich. According to a recent report from LIMRA, a marketing firm for the insurance industry, about 15 million households will owe estate tax under this scenario, with an average estate tax bill of $1.4 million.

The compromise legislation that we've heard about this year would establish a $3.5 million exemption for 2013 with a 45% top tax rate. According to LIMRA, that means about 3.6 million households would be on the hook for estate taxes next year, with an average tax bill of $2.6 mllion.

Many financial professionals and estate planning attorneys have been encouraging clients to take advantage of this year's very advantageous tax structure in order to pass as much tax-free money as possible to heirs. Saving on taxes is obviously an important goal, but clients must always weigh that goal against their own future financial needs and of course the ultimate goal: their peace of mind.
I will continue to keep you posted on estate tax developments.

No comments:

Related Posts Plugin for WordPress, Blogger...