2013 What Might Happen to the Estate Tax

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 its 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.