Last week we discussed the uncertain future of the estate tax. It was noted that the issue would likely hinge on the outcome of the 2012 elections. As with all legislation, action usually requires support from sufficient members of Congress and the President. Therefore, the rates and exemption levels for the estate tax would likely depend on the partisan affiliation of most members of Congress and the White House. Each New York estate planning attorney at our firm appreciates that the uncertainty over the issue presents complications for those families who are hoping to create strategies to minimize their estate tax burden. The idea of waiting for the outcome of an election is cold comfort for prudent planners who are working to provide for contingencies and bring stability to the process as soon as possible.
Some policy insiders are now suggesting that estate planning lawyers will not need to wait long after the election to see what happens next with the estate tax. According to a report in Advisor One, the consensus opinion among those most familiar with Washington thinking on the issue believe that Congress will decide what to do with the issue this year--in the lame-duck session in December.
We've previously explained how, without any action, the current tax rate (created as part of the so-called "Bush tax cuts") would expire at the end of 2012. That means that by January 1, 2013 the rate would be 55% (up from 35%) and at a $1 million exemption level (down from $5 million).
Now those who intimately follow the issue in Congress are suggesting that no matter what the outcome this November, the current tax levels are likely to be extended. Not only that, but some are suggesting that Congressional leaders have no stomach for a short-fix, and so they will push to extend the current, lower rates for at least another ten years. The President of the National Association of Insurance and Financial Advisors reported after a "Day on the Hill" that the eight members of Congress that he spoke with all suggested that the likely outcome this year was an extension of the current tax rates--either for a year or longer.
However, all local residents thinking about their New York estate plans should temper their faith in these pronouncements. As recently as the "State of the Union" address last month, the President noted that he'd like to see the current rate revert back to pre-Bush levels. He said, "Right now, we're poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2% of Americans...Do we want to keep these tax cuts for the wealthiest Americans?" The estate tax was certainly part of those temporary tax breaks. The President believes that the former rates and exemption levels are more appropriate. However, it remains unclear how much a priority he places on that issue and whether he would be willing to compromise on the estate tax disagreement in order to gain support for his preferred policies in other arenas.
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