Oct 292012

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?

 October 29, 2012  Posted by at 11:47 am  Add comments

  One Response to “Estate tax exclusionary amount: What will happen?”

  1. I unfortunately correctly forecasted the last adjustment, which happened 11+ months after the estate tax was zero. My view is that this will be the political football to deal with the fiscal cliff, and will not be resolved by the spring. Then, as people dying in 2013 will start having returns coming due, most likely a lower exemption amount in exchange for a tax increase should be the likely outcome. But if Congress and the president are if different parties, there is no real political benefit to not blaming the hard political choices on the fiscal cliff and so every reason to leave it the present law in place. Especially with a lame duck Congress.

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