It's over. American voted. We have our winners and losers.
With the election behind us, Washington has got to get down to business, and soon. The so-called fiscal cliff is looming. How this issue is handled will likely have a dramatic impact on the structure of federal estate taxes going forward, and therefore, on your estate planning.
The fiscal cliff refers to the expiration of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. This law was a temporary measure, intended to keep the Bush tax cuts in place through Dec. 31, 2012. The legislation unified the federal estate tax and gift tax and set the lifetime exemption at $5 million per person (currently $5.12 million due to inflation adjustment), with a 35% maximum tax on anything over that level. The law also introduced "portability," permitted surviving spouses to use whatever portion of the lifetime exemption his/her deceased spouse had not used.
If there is no congressional action, on January 1 we will face exactly the same estate tax climate we faced before the Bush tax cuts: A lifetime exemption of $1 million per person, a top tax rate of 55% on anything over that, and no portability between spouses.
Where does the Obama Administration stand on the issue? In the past at least, it has favored the middle ground between the pre-2001 tax rates and the Republican position favoring total elimination of the estate tax. The suggested numbers: $3.5 million lifetime exemption, 45% top tax on anything over that, and retention of the portability provision.
With the White House and the Senate in Democratic hands and the GOP in control of the House, the need for compromise is obvious. So is the need for certainty. Americans need to know what to expect so they can create or modify their estate plans to take full advantage of whatever tax breaks exist. C'mon Congress...get moving.