The March 2011 issue of this newsletter quoted an article that appeared in the Wall Street Journal on January 29, 2011:
"Over the past 26 months four sets of estate-tax rules have been in effect, with the individual exemption bouncing from $2 million (2008) to $3.5 million (2009) to unlimited (2010) to $5 million (2011).
Most worrisome are what is known as 'formula clauses.' These are provisions tying bequests to the amount of the estate-tax exemption..."
Unfortunately, the laws governing the gift tax, estate tax, and generation skipping transfer tax continue to present a moving target. This year's wealth transfer tax laws reflect a modest revision of last year's laws. And they will change yet again in 2013. However, the new package of laws that take effect in a few months will dramatically increase both the number of taxpayers who are required to pay estate tax and the rate at which they are taxed.
On January 1, 2013, the gift tax and estate tax exemption amounts will drop from $5.12M to only $1M. And the tax rate on the excess over $1M will jump from 35% to 55%. (While it's possible that Congress will consider revising these laws once again, it probably won't even begin to debate this issue until Summer 2013. And, based on Congress' recent dysfunction, reaching an agreement will prove very difficult.)
Consider an estate that is currently worth $2M. If the owner dies this year, the entire estate could be transferred tax-free. However, if the owner dies in 2013 or later, this estate would be subject to a minimum tax of $550K, unless the decedent had implemented a well-designed plan based on current law to reduce or eliminate their estate tax.
In every year since 2008, we have had to wrestle with different wealth transfer tax laws. When these laws change again in a few months - in very significant ways - will your current estate plan still work?
Please contact me at 323.654.9513 or email@example.com if you would like to discuss any aspect of your current estate plan.
Brooks Paley, J.D., LL.M.
Attorney at Law