Our readers have probably heard the talk about the coming fiscal cliff in Washington. For those who are unaware of the debate, it basically involves the cumulative effect of various laws that would result in tax increases and spending cuts if left unchanged. The focus of much of the debate has been on income tax, but estate and gift tax exemptions are also implicated. Where
Congress will land with respect to the estate tax exemption in 2013 is unclear.
Political analyst Andy Friedman has predicted that Congress will reach a general resolution by the end of the year or shortly thereafter, and that this plan will be similar to what President Obama has already proposed, which is an estate tax exemption somewhere between $3.5 million and the current $5 million exemption, along with a 45 percent estate tax rate.
Friedman also predicted that the final deal may decouple the estate and gift tax exemptions and leave the gift tax exemption at $1 million. As of now, both exemption amounts are combined. The portability rules currently in effect may also be extended. These rules permit a spouse to utilize any estate tax exemption not previously deceased spouse.
President Obama and members of the congressional tax-writing committees have proposed cutting back on certain wealth transfer techniques, which will also affect taxpayers’ ability to achieve tax savings.
Friedman did note as well that, while President Obama has focused on increasing taxes for the wealthy, he has not put a great focus on the estate tax.
Whatever ends up happening, it is important for those engaging in estate planning to work closely with an experienced attorney, so as to keep abreast of developments and ensure that any estate planning fits one’s needs.
Source: AdvisorOne, “Fiscal Cliff will Force Estate Tax Changes, Andy Friedman Predicts,” Melanie Waddell, November 27, 2012