Estate Planning Uncertainty in an Election Year
May 3, 2012 By Northern California Center for Estate Planning and Elder Law
Estate planning is a complicated endeavor under the best of circumstances. In an election year, uncertainty surrounding tax laws can further complicated the process of estate planning. This year, numerous critical tax laws are set to expire and/or may be subject to change depending on the results of the election in November.
Although rushing to take advantage of some of the current tax laws may seem to be your best move, first consult with an experience and qualified estate planning attorney and qualified tax advisor as there may be negative consequences to doing so. Consider the following potential tax changes that could impact your estate plan:
Payroll Tax Cut: Adds about $40 to the average worker’s take home pay. Congress extended the tax cut through 2012, but its future is uncertain.
Tax Rates: The 2001 tax law implemented a tax rate cut that is still in effect putting the rates at 10% - 35%. If they expire, individual tax rates will return to 15% - 39.6%.
Alternative Minimum Tax: The AMT was originally intended to prevent high income taxpayers from avoiding taxes; however, it was not indexed for inflation, resulting in more taxpayers being required to use the AMT over the years. A “patch” has been used by Congress each year to fix this, but the “patch” doesn’t extend to 2012 at this time. As many as 31 million taxpayers are expected to be impacted if another Patch is not forthcoming.
Tax Deductions and Credits: Numerous temporary deductions and credits have been adopted to help ease the financial stress of the recession. There is no guarantee that these will be extended.
Investments: The maximum rate for long-term capital gains could rise to 20% from 15% unless Congress acts before the end of the year. Stock dividends, currently taxed at a maximum of 15%, will also be taxed as ordinary income, with a potential top tax rate of over 39%.
Estate Tax Exemption: Currently at an all time high of slightly over $5 million, the exemption is scheduled to drop back down to $1 million next year, unless new tax legislation is passed to prevent this drop.
Gift Tax Exemption: Also currently at and all time high of about $5 million and set to return to $1 million for 2013 unless modified by a new tax law.
Estate Tax and Gift Tax Rates: Currently set at a maximum of 35%, both will revert to a maximum rate of 55% on January 1, 2013 absent action by Congress.
Planning opportunities presently exist in 2012 that may or may not exist in following years. If you have been contemplating significant gift and estate tax planning strategies, it would be wise to consult with experienced and qualified legal and tax advisors to determine whether these strategies should be implemented before year end.
ABOUT THE AUTHOR: Timothy Murphy
Experienced estate planning attorneys Sacramento CA of the Northern California Estate Planning Counselors, LLP offers estate planning and business planning resources to residents of Sacramento CA.
Copyright Northern California Center for Estate Planning and Elder Law
More information about Northern California Center for Estate Planning and Elder Law
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Payroll Tax Cut: Adds about $40 to the average worker’s take home pay. Congress extended the tax cut through 2012, but its future is uncertain.
Tax Rates: The 2001 tax law implemented a tax rate cut that is still in effect putting the rates at 10% - 35%. If they expire, individual tax rates will return to 15% - 39.6%.
Alternative Minimum Tax: The AMT was originally intended to prevent high income taxpayers from avoiding taxes; however, it was not indexed for inflation, resulting in more taxpayers being required to use the AMT over the years. A “patch” has been used by Congress each year to fix this, but the “patch” doesn’t extend to 2012 at this time. As many as 31 million taxpayers are expected to be impacted if another Patch is not forthcoming.
Tax Deductions and Credits: Numerous temporary deductions and credits have been adopted to help ease the financial stress of the recession. There is no guarantee that these will be extended.
Investments: The maximum rate for long-term capital gains could rise to 20% from 15% unless Congress acts before the end of the year. Stock dividends, currently taxed at a maximum of 15%, will also be taxed as ordinary income, with a potential top tax rate of over 39%.
Estate Tax Exemption: Currently at an all time high of slightly over $5 million, the exemption is scheduled to drop back down to $1 million next year, unless new tax legislation is passed to prevent this drop.
Gift Tax Exemption: Also currently at and all time high of about $5 million and set to return to $1 million for 2013 unless modified by a new tax law.
Estate Tax and Gift Tax Rates: Currently set at a maximum of 35%, both will revert to a maximum rate of 55% on January 1, 2013 absent action by Congress.
Planning opportunities presently exist in 2012 that may or may not exist in following years. If you have been contemplating significant gift and estate tax planning strategies, it would be wise to consult with experienced and qualified legal and tax advisors to determine whether these strategies should be implemented before year end.
ABOUT THE AUTHOR: Timothy Murphy
Experienced estate planning attorneys Sacramento CA of the Northern California Estate Planning Counselors, LLP offers estate planning and business planning resources to residents of Sacramento CA.
Copyright Northern California Center for Estate Planning and Elder Law
More information about Northern California Center for Estate Planning and Elder Law
View all articles published by Northern California Center for Estate Planning and Elder Law
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
