Over the past few weeks political debate around the national debt has dominated headlines. National leaders had disagreed for months on whether the debt ceiling needed to be raised. In addition, lawmakers had argued over whether spending cuts and revenue enhancements should be addressed as part of the debt crisis.
This week finally saw the apparent end of negotiations as the White House and Congressional leaders reached an agreement on many of these issues. The accord will raise the debt ceiling by $2.4 trillion, up to a total of $16.7 trillion. This will come with a $900 billion reduction in spending–a special Congressional committee will identify up to $1.5 trillion more in spending cuts in the coming months. Interestingly, no specific decision was made on revenue enhancements that either raises taxes or removes “tax loopholes” for corporations and individuals.
Our New York estate planning attorneys closely monitor all legislative developments that may influence how local residents decide to pass on their assets or plan for their long-term care. For example, finding additional sources of revenue enhancements generally means raising taxes. During this latest debate, increasing the estate tax was frequently mentioned as a possible way to increase federal revenue. The estate tax level was significantly reduced by President George W. Bush several years ago. Current leaders have often suggested that the Bush tax cut was misguided and that the level needed to be returned to its former amount.
Area residents leaving significant wealth must be cognizant of how estate tax changes may affect their New York estate plan. As a post yesterday in The Street explained, following this budget compromise, individuals can leave up to $5 million without triggering the sizeable estate tax. That tax-free amount can also be used to give money to others while one is still alive. However, this shelter is not guaranteed to be available forever. As it now stands the $5 million amount is only set to last for the next two years, expiring on December 31, 2012.
The volatility of these tax issues means that millions of dollars are often on the line depending on when residents make decisions about the transfer of their assets. However, proper preparation matters as much as timing when it comes to tax issues. For community members in our area, a New York estate planning lawyer can explain how trusts can be used to take advantage of the current tax-free gift amount right now, while allowing the benefactor to potentially draw into that gift amount if they need those assets down the road.
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