On July 25, 2012 the U.S. Senate declared war on your estate. Here's how your estate plan can fight back!
In a shocking political move on July 25, 2012 the U.S. Senate fired the first volley in a political war on federal taxes. The Senate passed a bill (which has little, if any, hope of passage in Congress) extending for one year several income tax benefits for most Americans. High income earners see significantly higher income taxes under this bill.
However, the bill does not extend the existing $5 million estate tax exemption. Instead, in a move that should strike fear in your estate planning, the bill returns all federal transfer tax (estate; gift; and generation skipping) exemptions to the 2003 level of only $1 million. While this number sounds high it is actually alarmingly low.
The federal estate exemption stood at a mere $600,000 in 1987. In 2012 dollars, that would equal a little over $4.7 million. So the 2012 exemption of $5 million only keeps pace with the 1987 exemption. The Senate bill turns the estate planning world upside down by redefining wealth in the U.S. Now the Senate has targeted small and middle class estates for the largest tax hike in history.
Now it is doubtful that the Senate's bill will become law. First, it is a slap in the face of President Obama, who asked for a bill setting the estate tax exemption at $3.5 million, it's level in 2009. Second, such an assault on middle class families is not only politically unwise in an election year, it is widely viewed as political grandstanding.
Nevertheless, this bill is out there and if it did become law, represents a major strike against your family and your property. So how do you protect yourself and make sure your estate plan is properly armed against this attack? Here are 3 simple steps to follow:
1. Review your estate plan immediately with your estate planning attorney.
2. If you don't have an estate plan, it's now time to do your plan. Learn how this bill affects you and your family and what your options are.
3. Act quickly. Several options and strategies require both spouses to be alive to take advantage of the current exemption rules. This means you should approach completing our estate plan with urgency.
We watch the progress of this bill as it attempts to wind it's way through Congress. With the election season upon us you will hear much about this in the coming days. To find out how this bill may affect you and your family, please let me know.
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