Estate tax increase
At some point, many of us have, or will lose a parent. The sadness of the loss alone is enough to occupy your time. But then comes the winding up of the estate. If your parents established a Trust, your job will most likely be simple and you’ll be able to focus on celebrating their life and their legacy. However, without a Trust (for example if they left a will, or worse yet, left no instructions at all), it’s much more likely that the next several months will be filled with court appearances, legal expenses and frustration as you attempt to navigate the complicated rules associated with probate. Can it get worse? Well, unfortunately, it might. The Estate Tax is currently in flux and it’s VERY difficult to determine what direction the political winds are blowing. Currently, any estate over $5 Million is taxed at a maximum rate of 35%. But starting next year, absent any intervention by Congress, the Estate Tax will be paid by any estate over $1 Million at a maximum rate of 55% – that means the Estate Tax may apply to 10 times as many estates as it previously did and the tax will increase a whopping 57%.
Congress is aware of the change but there is little agreement between the parties regarding the solution. Governor Romney and the Republicans would like to repeal the estate tax altogether, or at least leave it at its current levels ($1 Million estates and above, 35% tax rate). President Obama is pushing for the $3.5 Million level (still a 3 fold increase in the number of estates this applies to) and a tax rate of 45%. Whatever happens must be in place by the end of the year and with all the focus on elections, it seems highly unlikely that anything will happen until December. (If you want even more details, there’s a great article on the subject by Jeanne Sahidi at CNNMoney ).
I’m sure there will be more emerging on this as we get closer to the year end. If you don’t have a Trust in place, now’s the time to do something about it. Using simple structure tools, it’s possible to prepare for just about any tax eventuality and in many cases, eliminate the risk of tax all together. This is definitely a case where an ounce of prevention will be worth a pound of cure.
Evan A. Nielsen, Esq.
Licensed in California