The “Fiscal Cliff” and Estate Planning

Many of our clients want to know how the expiration of the Bush tax cuts will affect their estate plans. This event, the so-called “fiscal cliff,” can have far-reaching implications for certain wealthier individuals and calls for immediate, careful review of tax planning. At the time this article is written, estates valued less than $5.12 million are exempt from the 35% federal estate tax. However, if Congress takes no action by the end of this year, those numbers change significantly. The rate slated to take effect in 2013 increases to 55% for all estates valued at more than $1 million. It goes without saying that without action by Congress, there will be a significant increase in the number of individuals who will be exposed to the stunning 55% tax bite. This huge boost in tax rates, combined with a greatly lowered tax threshold compels clients to consider taking steps this year to deal with the threatened tax attack.

Next year the federal gift tax rates also increase to 55%. The good news is that for the remainder of 2012 an individual can remove from his or her estate up to $5.12 million by gifting. Thus, clients with family businesses, large retirement nest eggs or substantial real estate holdings should consider transferring assets to the next generation in the few months remaining in 2012. The ability to make such large, tax-free gifts may never happen again in our lifetimes.

Our attorneys are experienced in wealth and business transfer planning. We note that it is possible to transfer business interests in such a way as to maintain control in the older generation. If you have questions for our attorneys about how the fiscal cliff and the expiration of the Bush-era tax will affect your estate plan, please contact us today.