As with many things, legislators in Washington, DC, often punt issues affecting estate planning and seniors down the road a bit. One of those issues will be pending over the next couple of years, and it is something to be aware of if you are making preparations for the future.
You may remember that at the end of last year there was a debate about extending the Bush-era tax cuts. As the laws stood until the middle of December, the estate tax was going to return at the beginning of 2011 after a one-year repeal during 2010. In 2009 the estate tax exclusion was $3.5 million, and the maximum rate of the tax was 45%. Under the laws as they stood throughout most of 2010 the estate tax rate was going to go up to 55% and the exclusion was supposed to go down to $1 million, which is where it stood in 2002.
Congress avoided this at the last minute by passing the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The legislation increased the estate tax exclusion to $5 million and set the top rate at 35%. These amounts applied to the generation-skipping transfer tax and the gift tax as well.
The legislation was relatively good news for those who are not especially anxious to pay an estate tax. But these limites are not permanent. Just like the Bush tax cuts were scheduled to expire at the end of 2010, this new tax act is going to expire at the end of 2012. If it does, the tax rate will once again go up to 55% and the exclusion will go down to $1 million.
Of course, Congress may pass more legislation changing the estate tax rules, but this is the situation as it stands today. The best way to be prepared for this uncertain landscape is to obtain the services of an experienced estate planning attorney who can keep you apprised and make the appropriate recommendations as changes come down the pike.