Uncertainty is almost always attached to discussions about the estate tax. As our New York estate planning attorneys have often shared, it is vital for those of certain income levels to pay close attention to the prevailing political winds to understand if estate tax changes might apply in their situation. When a New York estate plan is crafted it will take into account the current estate tax scenario. However, what is true now may not be true in the future. It is for this reason that estate planners must remain in close contact with clients to ensure modifications to a plan are made if necessary.
When it comes to the estate tax, many prognosticators make various predictions about what we can expect in the future. For example, a story this week at Producer's Web suggested that the future of the federal estate tax depends almost entirely on what will happen in the upcoming November elections. The author suggests that there are four possible scenarios.
1) If Congressional gridlocked continues after the election then the new law may be allowed to sunset. This means that that there will be a $1 million estate tax exemption and a 55 percent tax rate. This would take effect January 1, 2013.
2) If the legislature remains split between the parties, then there is also a chance that Congress could extend the current law. Under this scenario the exemption would remain near $5 million (though slightly higher after adjusting for inflation) with a top tax rate of 35 percent.
3) Some argue that the political winds are shifting in favor of the Democrats. If the party gains control of the House and retrains power in the Senate (and the Presidency), there may be more room to make widespread changes. While this might lead to a range of possibilities, the preference of the Democrats is likely to craft a plan close to the previous law, with exemption levels near $1 million and rates closer to 55 percent.
4) Conversely, if Republicans take control of Congress then there is a chance that the federal estate tax could be repealed altogether.
It will be interesting to see if any of these predictions actually materialize. In the meantime, it might be helpful to listen to what candidates--Presidential and Congressional--have to say about the estate tax while on the campaign trail. That is likely the best indicator of what might happen if either party gains control of the legislative process and is able to muster enough votes to make changes to the current plan.
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