2012: The Year Estate Tax Planning Reemerges

It is no secret that the tax deal that President Obama and Congress reached in the final days of 2010 discouraged many from seeking estate planning advice in 2011.  The legislation that set a $5 million estate and gift tax exemption for 2011 and 2012 has all but eliminated estate tax avoidance as a motivating factor for clients.  This is true even though estate planners have been stressing the fact that these changes present generous planning opportunities.

Currently, the estate tax rate is 35% and applies only to estates worth more than $5 million, or $10 million for couples.  Since most individuals do not have that much in their estate, they understandably held a diminished concern for estate planning as motivated by the estate tax.  However, after its temporary layover from 2010, the estate tax is poised to jump back to 55% with a $1 million exemption, or $2 million for couples, if Congress and the President cannot reach another agreement.

Of course, the political landscape has changed significantly since 2010.  Now, it seems that the President and Congress cannot agree on anything.  To make matters worse, the government is in dire need of cash and our burgeoning deficit is at the center of a growing political firestorm.  All of these facts tend to support the idea that no deal is on the horizon and a reversion to the pre-Bush-era estate taxes seems highly probable.  Add to this the fact that the Fed has recently announced its intent to keep interest rates at historic lows, and the need for estate tax considerations to once again enter the estate planning conversation becomes even more pronounced.

Over the course of this year we will be examining developments in the federal estate tax and why they are important to estate planning.  For more information, you can also visit our Tax Blog or contact an Attorney in Jacksonville.