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2013 What Might Happen to the Estate Tax

2013 What Might Happen to the Estate Tax

By: Martin M. Shenkman, CPA, MBA, JD

Introduction/Overview: All the recent generous changes to the estate tax end in 2013. What's next? That is the key estate planning question for everyone.

√ Question: What options might exist for the estate tax in 2013?

√ Answer: Here are some options, and yes, there are more doors than Monte Hall had on Let's Make A Deal!

#1 $1 M exemption and 55% rate. While most tax experts believe this is unlikely, not planning for it could be the costliest mistake you've ever made. But, depending on your situation, there may be less costly and more flexible ways to address this possibility.

#2 Continue the $5M exemption and 35% rate from the 2010 Tax Act.

#3 Continue the $5M exemption and 35% rate but, eliminate our favorite tax techniques the wealthy use: discounts, GRATs, Crummey powers, etc. that would goose up revenue, but not superficially take back what was given.

#4 $3.5M exemption and a higher 45% rate, which is what most thought would happen. This could be with, or without, GRATs, discounts, etc.

#5 Repeal the estate tax (looking more likely than before according to some).

√ Question: Do you think it's really possible that they might repeal the estate tax?

√ Answer: Yes.  Only 5,600 decedents a year will pay tax and it is politically unfavorable. But only real gambling taxpayers would ignore the planning opportunities available before then. What if the $1M exemption and 55% rate happens?

√ Question: If they repeal the estate tax, what might take its place?

√ Answer: Here's a possibility: repeal estate tax and instead charge a capital gains tax on all assets on your final income tax return. No issue there with taxing what was already taxed, it wasn't. This solves the step up in basis issue at death; you appraise everything and pay your capital gains tax. The really ultra-wealthy folks that complained about the estate tax rate shouldn't gripe, because the rate would be the low capital gains rate. But, if this is done, the gift tax will have to remain, because it would be essential to back stop the estate tax. That could mean a $1M lifetime gift exclusion. Yet another reason certain groups of taxpayers need to plan now and plan fast.

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