Most people are in denial about the current state of the estate tax. Oklahoma City estate planning attorneys are going to be keeping a close eye on the way that the tides turn this year with regard to the federal estate tax parameters.
There is a sense of déjà vu in the air. At the end of 2010, the Bush era tax cuts were scheduled to expire. If this would have taken place without any new legislation passing to provide further tax relief, the estate tax exclusion would have been reduced to just $1 million, and the maximum rate of the tax would have risen to 55% at the beginning of 2011.
However, in the middle of December of 2010, a bill was passed and signed into law by the president that changed the estate tax parameters. It made the estate tax exclusion $5 million and the rate of the tax 35% in 2011.
This year the estate tax exclusion has been raised to allow for inflation. In 2012, the estate tax exclusion is $5.12 million, and the rate remains constant at 35%.
The bad news is that the aforementioned tax relief bill that was passed at the end of 2010 is expiring at the end of 2012. The same situation exists that we were faced with as the Bush tax cuts were scheduled to sunset. When this new tax relief act expires, the rate of the tax is scheduled to once again rise to 55% and the exclusion will be going down to $1 million.
Here’s where the denial comes in. Further relief may not be as easy to pass this year given the fact that it is an election-year and increases in revenue to reduce the federal debt are being called for from some quarters. Given his recent expressed desire for the wealthy to pay an even greater percentage of their income to the government as part of his “fair share” doctrine, it is very unlikely the president will sign a bill reducing estate taxes before the election. Of course, I could be wrong.
There are over 8 million households in the United States with assets that exceed $1 million so we are talking about a lot of Americans being exposed to this federal levy. (By the way, don’t forget life insurance death benefits when calculating the size of your estate for estate tax purposes.) If you are one of them, you would do well to sit down and discuss tax efficiency strategies with a licensed and savvy Oklahoma City estate planning lawyer.