In the United States, a decedent’s estate is potentially subject to an estate tax upon death. Whether or not the estate tax will apply, and the rate at which the estate will be taxed if it does apply depends on the laws in place at the time. For many years, an estate has been allowed an exemption amount from the estate tax. This means that each estate may have assets valued up to the exemption amount before the estate tax kicks in. After that, the estate will be taxed at the current estate tax rate. As of 2012, the exemption amount is $5.12 million and the estate tax rate is 35 percent; however, those are both set to change for 2013.
The current exemption amount is at an historic high. Just a few short years ago the lifetime exemption amount was set at $1 million. The legislation that raised the exemption amount to the current $5.12 million limit is set to expire at the end of 2012. Congress basically has three options–extend the current exemption limit; create a new exemption limit; or do nothing. If Congress fails to act, the exemption amount will go back to $1 million. Likewise, the current estate tax rate of 35 percent is historically low, but will also return to the rate of 39 – 55 percent unless Congress acts before the end of the year.
So what does all this mean to you? The average person will not be impacted at the current exemption limit; however, if the limit is reduced to $1 million, even a relatively modest estate could face estate taxes upon death. Talk to your estate planning attorney now so that you can make any necessary changes to your estate plan so you are prepared no matter what congress and the President may do.
- An Incentive Trust Can Provide Guidance - November 14, 2019
- Understanding the Probate Process - October 7, 2019
- Edith Windsor and LGBT Estate Planning - October 3, 2019
