One of the things that you have to pay attention to when you are planning your estate is your potential estate tax exposure. The majority of Americans are not required to pay the estate tax because the value of their estates is less than the exemption amount. At the present time the estate tax exclusion is $5 million, so your estate is not exposed to the tax if it is worth less than this amount. It should be noted that the current rate of the estate tax is 35%.
These parameters are in place because of the passage of a tax relief act that was signed into law by the president in the middle of December of 2010. This act is scheduled to expire or sunset at the end of 2012. If this takes place without any new laws passing in the meantime that affect the estate tax parameters, the estate tax rate is going to go up to 55% and the exclusion will be reduced to $1 million at the beginning of 2013.
A similar scenario existed at the end of 2010 before this tax relief act was passed. This time around it may be more difficult for lawmakers who are in favor of estate tax relief to get favorable changes through the legislature. As we all know there is an enormous federal debt that is a source of great concern on Capital Hill, and many people are calling for increases in revenue.
Spending cuts are inevitable, so it’s going to be difficult to justify reducing the estate tax while insisting that cuts be made to popular government programs, even those that are very important to senior citizens such as Social Security, Medicare, and Medicaid.
The future of the estate tax is uncertain, and this is one of the reasons why it is a good idea to develop an ongoing relationship with an experienced estate planning attorney. He or she will always know exactly where the laws stand at any given time and make sure that your estate plan is up-to-date given the ever changing economic landscape.