New York Estate Planning & Elder Law Blog
Only a few days remain in the year, and most financial activity for 2012 has come to a close. However, the end of year action has already brought one of the most active seasons ever. Financial advisors, estate planning attorneys, and others have all seen community members of all different income brackets seek out help understanding how possible legal changes in the new year might affect their own financial health and long-term prospects.
A Forbes story last week explored one of the main reasons for confusion and the seeking out of help: the “give now or pay later” problem. This is an issue that mostly affects those with significant assets who may be affected by gift and estate tax changes. As has been documented exhaustively, Congress is considered what to do with the gift and estate tax. Over the past ten years the tax rate has steadily fallen and the exemption level has risen. In 2010, the estate tax was eliminated altogether. However, what will happen in the new year remains to be seen.
Many different options are on the table–from a permanent elimination of tax (unlikely) to a return to pre-2001 rates. A table from the Tax Policy Center (viewed here) offers a helpful snapshot of the options and how many people would be affected by each. One comparison offers the range of possibilities. If the current rate continues, about 3,800 estates will be affected next year. Those estates would bring in about $12 billion in taxes. Conversely, if the 2001 rates returned then 47,000 estates would be affected and over 300% more tax revenue would be generated.
For those families affected, the possible significance of changes is clear. The Forbes article points to a helpful example. Right now if you give another person $5 million, then you pay no taxes on that gift. Without action, next year the same gift with also come with a $2 million gift tax bill. This is no minor change.
Of course, even though we are only days away, almost none of the uncertainty has been eliminated. As before the best option is to watch the debate and policy action closely while keeping in contact with your planning professionals to determine if any changes are needed in the future to account for any changes in the law.
See Our Related Blog Posts: