Estate Tax Law and Expirations On the Horizon

Among the plethora of Bush era tax cut and sequester debates, Congress must also address the expiration of the current estate tax law before the year’s end. As it stands, the federal estate tax exemption is set at $5.12 million and estates valued over this amount will be taxed at 35 percent. If no action is taken by Congress, the exemption will revert to $1 million and the estate tax rate will be 55 percent in 2013. It is estimated that 52,500 estates will be affected in the event Congress fails to act.

Business and farm lobbyists are fighting to rein in the estate tax, with many hoping to have the tax eliminated. In a full-force effort, they are trying to persuade Congress that resources needed for investment are being drained due to the constant changes in the estate tax rate, in recent years.

The GOP agrees, on the basis that decreasing the exemption and raising taxes on job creators in this economy rivals common sense. On the flipside, many Democrats repeatedly assert that in order to cut the deficit, the estate tax should return to the 2009 levels of a 45 percent rate for estates with a $3.5 million exemption.

Long-term and estate planning is subject to dramatic fluctuation if the estate tax plan expires without action. Currently, the federal unused spousal exclusion is portable, meaning, if one spouse dies and does not use all of the exclusion, the surviving spouse can combine the remaining amount with his or her exclusion. Also at risk of expiration, is the portability of the federal spousal exclusion in the event that the estate tax sunsets.

Witzke, Berry, Carter & Wander PLLC is keeping a close eye on the ongoing debates and how any estate tax decisions may affect you and your clients.

Mr. Witzke practices in the areas of estate and gift tax planning, financial planning, retirement planning, charitable giving, elder law, and small business planning. He focuses on helping clients grow, protect, and transfer wealth efficiently. Mr. Witzke is a past president and board member of the Financial Planning Association of Michigan, a member of the board of directors for Leadership Oakland, and a member of the planned giving advisory committees of Wayne State University and the Community House in Birmingham. Follow Mr. Witzke on Twitter @gr8estatelawyer.