They say that all good things must come to an end, and this is certainly disheartening when it comes to estate tax relief. Unfortunately, the relief that we were provided by the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 may indeed come to an end when New Year’s Day of 2013 rolls around.
Throughout 2010 the estate tax was repealed due to provisions contained within the Economic Growth and Tax Relief Reconciliation Act of 2001, commonly referred to as the “Bush tax cuts.” During the 2009 calendar year the maximum rate of the estate tax was 45%, and the estate tax exclusion stood at $3.5 million. If the laws had stayed the same as they were throughout 2010, the estate tax exclusion would have been reduced to $1 million and the rate of the tax would have risen to a jaw dropping 55%.
But because of the passage of the aforementioned Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 the top rate of the estate tax is now 35%, and the estate tax exclusion sits at $5 million. So if your estate is not valued in excess of $5 million, your heirs currently face no estate tax exposure.
But don’t let this lull you into a false sense of security. If there is no new estate tax legislation, then at the end of 2012 when this new measure expires the exclusion will be cut to just $1 million and the rate will go up to 55% just as it was going to do upon the expiration of the Bush era tax cuts.
Of course it is possible that further legislation can be passed that changes the playing field for the better once again. But given the mood in Washington surrounding deficit reduction, a lot of people want to see increased revenue. Rightly or wrongly, the estate tax is viewed as a tax that is imposed on the rich, so it is a likely place for those seeking revenue increases to focus. So take nothing for granted and keep in touch with your estate planning attorney with regard to this matter as the expiration of the current tax relief act draws closer.