The rules governing taxes on gifts and estates are set for major changes at the end of the year unless Congress steps in.
The taxes, which currently concern mainly the very wealthy, will soon ensnare far more people if scheduled reductions in exemptions are allowed to go through. The exemption level for each tax is currently $5.12 million and is set to plunge to $1 million.
The lifetime exemption on gift taxes is also scheduled to make an identical drop.
The impending changes have prompted a frenzy of activity among wealthy Americans eager to make gifts and create trusts under current law, filling the calendars of estate planning attorneys and financial planners nationwide.
The estate tax rate is also scheduled to increase from a current top rate of 35 percent to a new top rate of 55 percent.
According to Congress’ Joint Committee on Taxation, the change in estate tax exemptions would make approximately 55,000 estates subject to the tax next year, compared to fewer than 4,000 estates under current law.
President Obama’s budget proposal of February 2012 called for an estate tax exemption level of $3.5 million and a top rate of 45 percent. It did not contain a recommendation for gifting exclusions.
Estate and gift taxes are not the only ones scheduled to change. The tax exemption for generation-skipping transfers and trusts would likewise drop from its current $5 million to $1 million under current law. In addition, trusts of this type currently can shelter assets from taxation for an unlimited number of generations, but President Obama has proposed limiting the effect to 90 years.
Most experts predict that Congress will not resolve the matter before the end of the calendar year, but any compromise reached in 2013 could be retroactively applied to January 1.
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