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Time getting short to take advantage of $5 million estate tax exemption

As we have mentioned on this blog in the past, the federal estate tax exemption amount, which is currently at $5 million through the end of this year, is set to decrease to $1 million if Congress takes no action. That means that, in 2013, those who die with estate with a value in excess of $1 million will be subject to federal estate taxation.

2010 estates that were at or below $5 million, as well as 2011 estate at those values, were and are eligible to elect out of paying federal estate tax. 2012 estates at or below $5.12 million will generally have the ability to elect out of federal estate tax as well. These exemption amounts are affording many people the opportunity to pass on much greater wealth.

In addition to changes in the exemption amount, though, 2013 will also usher in changes in federal estate tax rates. For 2010 through 2012, the maximum estate tax rate is 35 percent, but the maximum tax rate for 2013 will shift to 55 percent for taxable estate exceeding $3 million.

The default changes in these numbers, as many have noted, have led to a situation where estate planners are talking about a "good year to die," and other such notions. While there is truth in this type of expression from a financial point of view, it is hardly the kind of thing most families want to focus on.

Some are hopeful, perhaps overly so, that 2013 will bring a repeal of the federal estate tax. But there aren't any substantial signs that such a scenario will take place. What we know is that individuals will be left with a $1 million exemption amount if no action is taken. That will reduce planning options for even moderately wealthy Americans.

Suffice it to say, time is getting short to take as much advantage as possible of the current exemption amount.

Source: Forbes, "Federal Estate Tax Still Headed in the Wrong Direction," Matthew Campione, January 9, 2012.

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