• Melissa L. Steinberg

Death and Taxes: the Uncertainty of Inevitability in 2013

Updated: Aug 29, 2019

In 2001 and 2003, then-President George W. Bush enacted legislation increasing federal estate and gift tax exemptions to unprecedented levels.  These tax breaks were originally scheduled to expire in 2010; however, President Barack Obama temporarily extended them through the end of this year.  As things currently stand, each taxpayer is allowed a $5,000,000 exemption for 2011 and a $5,120,000 exemption for 2012 (these are also the current exemptions for generation-skipping transfer and gift taxes).  Additionally, the maximum federal tax rate for estates greater than the exemption is 35%, and the concept of portability was introduced to estate planning: for decedents dying in 2011 and 2012, if the first spouse to die lacks sufficient funds in his estate to claim the entire exemption, then the unused portion of the exemption can be transferred to the surviving spouse.  The gift tax exemption is also portable between spouses; however, the generation-skipping transfer tax is not.

So, what does this mean for those of us who, knock on wood, won’t die before the new year?  President Obama extended these tax breaks once – he’ll do it again, right?

Not necessarily.  These questions are largely unresolved due to the upcoming presidential election, and it is unlikely we will have any action before then.  President Obama’s current proposal is to reduce the estate and generation-skipping transfer tax exemptions to $3,500,000 and the gift tax exemption to $1,000,000.  Under the President’s plan, the top estate, gift and generation-skipping transfer tax rates would be 45%.  However, the President would make the ability to port unused exemptions between spouses permanent.  Mitt Romney, on the other hand, favors repealing the federal estate, generation-skipping transfer and gift taxes entirely.  The direction these laws take will depend, in large part, on the outcome of the November election.  If President Obama and Congress fail to act prior to December 31, 2012, then the exemptions will revert to pre-2001 levels, meaning an exemption of only $1,000,000 and a maximum tax rate of 55% on any excess over the exemption.  Perhaps, if Romney wins the election, none of this will matter – but it’s certainly risky for Americans to wait out these uncertain times without considering the impact on their estates if they were to die during a lapse in the tax breaks.

These ever-changing tax implications are one of the biggest headaches for estate planning practitioners.  Considering that these particular taxes generate a relatively insignificant amount of revenue for the country, at times it hardly seems worth the effort to draft estate plans to accommodate every possible legislative whim.  However, at least for the time being, such careful planning is necessary to ensure that your family, friends and other beneficiaries reap the greatest possible benefit from your estate plan.

Because there is a great deal of uncertainty surrounding the future of the federal estate, generation-skipping transfer and gift tax exemptions, Americans with potential taxable estates greater than $1,000,000 should review their estate plans with their professionals and carefully consider whether changes should be made.  Some options worth consideration are making gifts (within the current gift tax exemption) to beneficiaries before the end of the year, whether outright or in trust; investing in real estate during the down market; prudently investing in marketable securities; and making estate documents as flexible as possible to accommodate fluctuating tax rates.

The good news: the yearly federal gift tax exemption should rise from $13,000 to $14,000 in 2013.  However, don’t expect much of a break with your paychecks: income and capital gains taxes are set to increase significantly, to go along with new Medicare taxes.  Also, the social security tax cuts we currently enjoy will expire at the end of the year.  Taxpayers in every bracket would be wise to consider these issues throughout the fall by reviewing their estate plans, making adjustments with their employers concerning withholding amounts, adjusting retirement and college savings plans, tweaking monthly budgets and carefully considering the impact of federal, state and local elections on their financial bottom lines.

#federalgenerationskippingtransfertax #BarackObama #socialsecuritytax #gifttax #federalestatetax #Medicaretax #MittRomney #exemptions #estateplanning

6 views0 comments

DISCLAIMER: The material provided on this website (including linked websites and/or blogs) is for informational purposes only, and for the purposes of New York State rules governing attorney ethics, this site may be considered attorney advertising. The information provided herein is intended to be general in nature, is not intended to address the specific situation of any reader or third party, is not legal advice, does not replace the assistance, representation, or advice of qualified legal counsel, and does not constitute an attorney-client relationship between any party and the Law Office of Melissa L. Steinberg, PLLC or Melissa L. Steinberg, Esq.  Every effort has been made to ensure that the information contained herein is timely, up-to-date, and accurate. However, because this information is not tailored to the needs of any particular individual, and because the law is ever-changing, neither the Law Office of Melissa L. Steinberg, PLLC nor Melissa L. Steinberg, Esq. makes any claim as to the accuracy of information contained herein, nor does the Law Office of Melissa L. Steinberg, PLLC  and/or Melissa L. Steinberg, Esq. guarantee any particular outcome should any party undertake any action, or fail to undertake any action, based on the information contained herein.  

NOTICE OF COPYRIGHT: © Melissa L. Steinberg, Esq. and Law Office of Melissa L. Steinberg, PLLC, 2012-2019. Unauthorized use and/or duplication of this material without permission from Melissa L. Steinberg, Esq. is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Melissa L. Steinberg, Esq. and/or Law Office of Melissa L. Steinberg, PLLC and/or Anti-Terror Lawyer's Toolkit, as appropriate, with clear and specific direction to the original content.

TERMS AND CONDITIONS: The complete Terms and Conditions for using this website, and any content contained herein, is available here. Any user of this website or the content contained herein is responsible for complying with these Terms and Conditions at all times, without exception.

PRIVACY POLICY: The Privacy Policy governing this website's collection and use of information is set forth here, as well as in other locations on this website to maximize user knowledge of and exposure to such Privacy Policy, which fulfills any obligation of this website to publish or disseminate such Privacy Policy.