The Estate Tax - Where Is It Headed?

Thank you Amy for the great article. I highly recommend  Tax and Accounting Services for all your asset management, accounting  and tax strategy evaluation. Please see all services they are offering.  Also, if you like to ask any questions about Real Estate Taxes,  contact Amy Vaughn at avaughn@windes.com or 562-435-1191.

in 2011 and $5,120,000 ($10,240,000 for married couples) in 2012, and reducing the maximum tax rate to 35%. The 2010 Act also provided
for portability of the exemption amount, allowing the unused exemption amount of a deceased spouse to pass to the surviving spouse. The 2010 Act is set to expire at the end of this year. The exemption amounts and maximum rates are scheduled to revert to 2001 rates and amounts, and
portability will no longer be available.


So, what is in store for the estate tax? While no one is sure, following are some of the options for the estate tax in 2013:
1. Congress takes no action before year-end and allows the exemption and tax rates to fall back to the pre-2001 levels. This means
a $1,000,000 estate and gift exemption amount (with the GST exemption indexed for inflation) and a maximum tax rate of
55%. While many tax advisors believe this is not likely to occur, this is the law scheduled to take effect on January 1, 2013.
2. Congress extends the 2012 amounts, rates, and portability for one or two years as a “patch” until a final determination of
the estate tax policy is made.
3. Congress makes the current 2012 law permanent, indexing the $5,120,000 exemption amount each year for inflation,
keeping the maximum tax rate at 35% and allowing portability. However, under this scenario, certain popular estate planning
techniques could be eliminated or severely curtailed, including valuation discounts for transfers between family
members, grantor retained annuity trusts (GRATs) with less than 10-year terms, estate tax benefits of grantor trusts, and
unlimited GST protection for certain transfers in trust.
4. In a plan proposed by President Obama, Congress compromises and makes the 2009 law permanent, with
an estate and GST exemption amount of $3,500,000 and a maximum tax rate of 45%. The gift tax exemption
would revert to $1,000,000 with a 45% maximum tax rate. Portability would remain intact. Obama
also proposes the elimination or curtailment of a number of estate planning techniques mentioned above.
5. Congress repeals the estate and GST tax, leaving the gift tax intact, with a $1,000,000 (or higher)
exemption amount and a tax rate at 35% to 45%. If Congress should repeal the estate tax in 2013, they
may replace it with a capital gains tax, stepping up the assets owned by the decedent to the date-of-death
values and taxing the appreciation at the lower (for now) capital gains rate.

by: Amy Vaughn, CPA, JD
Senior Manager
Tax and Accounting Services