Earlier this week we touched on the fact that estate tax issues need to be on all New Yorkers' radar, because the state tax kicks in at a far lower level than the federal tax. The federal rate was seemingly fixed as part of the compromise legislation that averted the "fiscal cliff" earlier this year. While any law can be changed, the passage of this legislation was assumed by most to signal some level of finality on the matter. Debate had raged for months (even years) about the exemption level and rate. The uncertainty was a challenge for estate planners, because it is more difficult to craft complex protection plans when the tax rules are a moving target
In that vein, regardless of one's own opinion of the estate tax, passage of the compromise bill was a welcome relief--offering stability. But that stability may be short lived, as proposals about changing the federal estate tax have are already making their way back into national political discussions.
Here We Go Again
As reported this week, President Obama released his administration's proposed budget. Part of that proposal calls for changing the estate tax in five years, back to the level and rates that existed in 2009. More specifically, this would mean an exemption level of $3.5 million and a top rate of 45%. That proposal is closer to what the President was hoping to achieve when in the midst of the fiscal cliff avoidance talks--he ultimately settled for a less aggressive tax. According to a Washington Times story, the exemption level in the latest proposal would likely affect about 3 out of every 1,000 taxpayers. According to the President's budget proposal this new rate and level would raise about $79 billion over a ten year period. Obviously he plans to use those funds to fill gaps in the federal budget.
Importantly, the same proposed budget includes various other tax changes and elimination of certain currently available planning tools.
It is unclear how likely it is that the President's budget will pass in any version similar to this proposal. There is a big difference between offering a budget and actually having it become law. That is especially true considering the House of Representatives is controlled by Republicans who have very different ideas about these issues. At the very least, it will be important to see how the debate around these issues take shape to get an idea of what tax changes may actually make their way through the system and affect estate planning strategies.