The average layperson may not fully understand just how much the legislative processes going on in Washington impact the field of estate planning. We’ve recently gone through crises of sorts regarding approving a budget for this year and raising the debt ceiling so that the federal government can meet its obligations.
Some say that the burden must be shared and that we must increase revenue while reducing spending. Others say that there is no need to increase revenue because lower taxes will always result in a more vibrant economy overall.
As of this writing there is an agreement in place that does not call for any increases in revenue. However, there are those who are adamant about raising taxes on those that they describe as “wealthy.”
The Bush era tax cuts were extended at the beginning of this year via the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
There were also provisions contained within this measure that provided some estate tax relief. If the Bush cuts would have been allowed to expire at the end of 2010 the estate tax exclusion would have been $1 million and the top rate of the tax would’ve been 55%. But this tax relief bill spared us of this fate and at the present time the maximum rate of the tax is 35% and the exclusion is $5 million.
However, this tax relief may be in jeopardy. 2012 is an election year, and though the government is functioning the debates continue with regard to how the deficit problem should be addressed. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 expires at the end of 2012 in the same manner that the Bush tax cuts were set to expire at the end of 2010. If this act does expire with no new legislation being passed in the meantime, we will once again be faced with a $1 million exclusion and a 55% top rate.
This ongoing situation is one of the reasons why it is a good idea to keep in touch with your estate planning attorney and engage in ongoing reviews of your estate plan as relevant changes come down the pike.