Will Estate Tax Burdens Affect More Families in 2013?

The occupancy of the White House and party control in the U.S. House and Senate will undoubtedly influence the future tax situation at a federal level That includes the tax that most immediately think of when considering their inheritance–the estate tax.

Last week the Wall Street Journal picked up on a new report that argues that the estate tax burden may affect a large number of households next year. The report–crafted by the well-known consulting group, LIMRA–suggest that without changes from the current trajectory, 15 million U.S. families may have some estate tax liability next year. That would represent 1 in 8 households–a far cry from the assumption that this is a concern only for the super-rich.

The findings were reached by analyzing the Survey of Consumer Finance from the Federal Reserve Board. LIMRA noted that many households might be pulled into the bracket where the estate tax applies because of the wide range of assets included in estate tax calculations–things like real estate, business ownership, and life insurance values.

Right now the exemption level is slightly more than $5 million However, that is due to drop to $1 million (with a 55% maximum rate) in 2013 without federal action. Compromises could be reached, however, which might result in a different arrangement. According to the LIMRA data, the three most likely outcomes are:

1. No congressional action–reverting to $1 million exemption and 55% maximum rate 2. Extension of current plan–$5 million exemption at 35% maximum rate 3. Compromise with $3.5 million exemption and 45% maximum rate.

The bottom line, the report argues, is that many families who never would expect to have concerns about this tax, may be shocked to learn that their cumultive assets will force a tax bill. LIMRA estimates that about 12.5% of households would have some liability without any action. Life insurance can be used to pay the estate tax, but the LIMRA reports estimates that 55% of households would not have enough insurance to cover the tax burden. That may force very difficult choices, like selling a home or business just to pay the liability.

All of this is an important reminder of the need to act prudently to account for these issues ahead of time. In our area, take a moment to reach out to an estate planning lawyer to begin the process.

See Our Related Blog Posts:

Should You Take Advantage of the Tax Situation Now?

Protecting Assets While Facing Uncertainty

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