Recent talk about the “fiscal cliff” that is fast approaching on Jan. 1 has prompted worry in some circles about estate administration implications included in the expiration of certain tax cuts and spending provisions. The effects of the fiscal cliff on estate planning have not been addressed thoroughly in the national media, though it warrants some attention, considering the scope of the legislation that could be affected by Congressional decisions.
If we plunge off the cliff on Jan. 1, the federal estate tax and gift tax exemptions will be lowered to their previous level of $1 million; current provisions have allowed that ceiling to rise to $5.12 million. Also, estate tax rates will skyrocket to as high as 55 percent from their current 35 percent margin.
Before panic sets in, keep in mind that Congressional representatives are hoping to strike a compromise, especially with the gift and estate tax exemptions. Most lawmakers agree that the ceiling will be set at a more reasonable $3 million.
Still, the fix for this problem remains unclear. Congressional representatives have not hinted at whether the tax changes will be retroactively applied if they are indeed updated. Those who are affected by these particular changes should be aware that the fiscal cliff could impact their estate plan now and for years to come. Consider taking quick action to place your estate holdings in tax shelters before the end of the year in order to avoid massive penalties.
The people most likely to be affected by this process will be individuals whose holdings fall in the $1 million to $5.12 million range. Those people may not have taken action to shield their finances from the federal government, and they may find themselves scurrying to fix existing estate tax concerns.
Remember that it is not too late to take action including establishing trusts and other protective measures for your money. Planning in the face of an uncertain economic and legislative environment is always a wise choice.
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