The U.S. is hanging off the fiscal cliff, leaving numerous uncertainties for American families looking to transfer their wealth to the next generation. Estate planners are waiting to see if Congress will extend the estate tax exemption currently in motion or revert back to a much lower amount.
The uncertainty regarding the estate tax exemption makes it very difficult for estate planners to give you advice that will minimize your estate tax liability,” says attorney Paul Cowan, of Golden & Cowan in Miami, Florida. Without congressional action, on Jan. 1, the current $5.13 million federal estate tax exemption level (twice that much for married couples) will drop to $1 million, and the current 35 percent top tax rate will increase to 55 percent.
According to CNBC, there is little agreement on a compromise. The tax has been labeled “the death tax” by conservatives who say it hurts farms and small businesses. The left, meanwhile, says the tax is needed to prevent family fortunes in America from becoming too large and creating powerful dynasties.
President Obama has proposed setting the estate tax rate at 45 percent and an exemption of $3.5 million.
The looming expiration of the current estate tax exemption has people of means scrambling to restructure their estates for next year. If you’re not exactly sure how to prepare your estate for 2013, contacting an estate planning professional is vital.
Even if your estate isn’t big enough to owe federal estate tax, the state may still take a bite. Many states collect their own estate or inheritance taxes.