Many of our readers may already be aware of the big changes coming to the estate and gift tax in 2013. Essentially, the current exemption amount and tax rates are set to shift in the coming year back to their pre-2001 numbers.
Through the end of the year, the gift and estate tax exempts taxpayers on bequests and taxes up to $5 million, and taxes those over that amount at a rate of 35 percent. If Congress does nothing in the next couple weeks, the exemption amount will return back to $1 million and the top tax rate will go back to 55 percent, forcing the wealthy once again to decide what to do with their assets.
The thing is that Congress could prevent the reversion back to a lower exemption amount, and this has been an ongoing conversation. President Obama's desire is to revert back to 2009 numbers-an exemption amount of $3.5 million and a tax rate of 45 percent. Some lawmakers want to make the current exemption amount permanent, but others want to let the rate and exemption return to pre-2001 levels for revenue collection. If Congress decides to extend current levels, an estimated 3,800 estates would owe taxes totaling $12 billion in 2013, but if the temporary tax cut expires, over 47,000 estates would pay almost $38 billion.
One advantage of the high gift tax exclusion and low tax rate is that one doesn't have to die by the end of the year to take advantage of the tax law. In our next post, we'll continue speaking about gifting, and some things to think about with your own estate plan.
Source: Forbes, "Give Now Or Pay Later: Rich Face Dillema With Fate OF Estate And Gift Taxes Up In Air," Robertson Williams, December 17, 2012