Our country is headed for a “Fiscal Cliff” that will affect everyone. Are your Wills, Trusts and general Estate Plan prepared for this potential financial calamity?
The 2001 Bush Tax Cuts are expiring automatically at the end of 2012. If Congress and the President do nothing or are unable to come to a compromise we know that taxes on everyone will increase dramatically, including the so-called “death tax” (which is actually an Estate Tax).
Income taxes will increase, capital gains taxes will increase, several tax credits and exemptions will expire and the Estate Tax Exemption will decrease from the current approximately $5 Million exemption to an exemption of $1 Million. Not only will the exemption amount decrease (making more Decedent Estates subject to the Estate Tax), but the tax rate will increase from about 35% to a rate of up to 55%. (Rates can vary depending on the size of the Estate and the State of Residence of the Deceased).
The Gift Tax exemption will also decrease from about $5 Million to $1 Million.
Capital gains taxes which are currently only about 10% to 15% would increase to 20% to 25% next year. In addition, Obamacare imposes a surtax that will effectively increase capital gains by 3.8%. This creates questions as to whether assets should be sold this year to avoid higher capital gains, whether assets should be gifted this year to take advantage of the higher gift tax exemption, and whether an individual’s Will, Trust and related documents are adequate to address these financial uncertainties.
As always, be sure to consult with your legal and financial advisers.
Written by Robert J. Penny.