There are only a few days left before the clock strikes midnight on December 31st and the tax law changes. Or will it?
As of this writing, the law to which it will change will be the pre-EGTRRA/TRA law. In other words, currently in 2012, individuals with estates under $5.12 million are not subject to federal gift or estate tax. However, if this law expires, estates larger than $1 million will become taxable at the beginning of 2013 and we will back to a $1 million applicable exclusion per person. If you think only the super-rich need to worry about estate and gift taxes, you may want to think again. 2013 will not be a very happy New Year for many because of the tax changes it might bring.
So for now, we wait to see if President Obama and Congress will come to an early resolution on the issue before the Bush Tax Cuts expire on January 1, 2013. Since both sides have been quiet on this issue, it is not clear whether the estate tax is even part of the negotiation on the fiscal cliff.
Many things will change if we revert to the old law. Because the $1 million exemption will affect so many people, estate taxes will, once again, become a more significant reason to prepare an estate plan that will help them avoid some of these costly taxes. In the past few years, we have seen a shift in what people have been focused on planning for tax issues have been less of a priority, instead more attention has been given to leaving a lasting legacy, often non-financial, to their loved ones, as well as protecting their assets, providing remarriage and divorce protection, or dealing with Medicaid concerns.
Taxes will likely always be an important planning factor for many, especially after January 1st. However, it is still important to remember that todays diverse, modern family has many priorities to plan for other than just taxes.
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