With lawmakers expected to focus on income and investment tax breaks during an upcoming session before Congress convenes again in January, legislators are unlikely to address estate taxes. Unless lawmakers take steps to prevent it, the inheritance tax rate will rise from 35 percent to 55 percent at the beginning of 2013. Additionally, the currently $5 million gift and estate tax exemption will automatically reset to $1 million.
Although some believe changes to estate law will be made retroactive to January 1, 2013, Texas residents may still face slightly less favorable terms for their estate tax planning efforts after the new year. A director with the Wealth Management Group said he expects Congress to “come up with a compromise, such as a $3.5 million exclusion and 40 percent estate tax rate,” which would be less advantageous than rates and exemptions.
It is unlikely that any wealthy individuals hoping to take advantage of current rates on complex donations of non-liquid assets, the director explained. This is because the documents required to do so take longer to prepare than is left in the year, and appraisers are already backlogged well into 2013. However, he said that funding an irrevocable grantor trust to $5 million with stocks, cash and other easily valued assets before the end of 2012 could prove beneficial in 2013, as it would allow one to purchase property, businesses and other assets that are typically harder to value.
Taking the proper steps in matters of estate taxes is crucial, especially for high-net-worth individuals that wish to protect the value of their estate for the benefit of their future heirs. Consulting with a qualified tax law attorney ensures that this goal can be reached.
Source: Investment News, “Estate department: Inheritance tax changes likely to be retroactive,” Liz Skinner, Nov., 8, 2012