For 2012, estates valued up to $5.12 million are excluded from the estate tax. Amounts exceeding the exclusion amount are taxed at a rate of 35%. However, on January 1, 2013, the law establishing these amounts is set to expire. After that the excluded amount will reduce to $1 million, and amounts over that are set to be taxed at a rate of 55%.
There is much speculation over whether Congress will act to extend the current rates. And if Congress does act, there are a variety of scenarios that could take place.
- The 2012 rates can be reinstated.
- The 2012 rates can be reinstated, but indexed for inflation.
- The 2013 rates can be left in place.
- The 2013 rates can be left in place, and indexed for inflation.
- The estate tax can be eliminated.
- There can be a middle ground, where the exclusion amount is in the $3 million range, and the tax rate is 45%.
I believe the most likely is the last scenario. However, I also believe it will not occur until January or February. The current Congress is unlikely to act before the election (which is only a week away), and the results of the election will impact how successfully Congress can pass new legislation during the lame duck session. I do not believe the estate tax will be eliminated, even with a Republican controlled House and Senate and a Republican president.
What thoughts do others have about the future of the estate tax?