Tag Archives: Exemption

Democrats Divided Over Future of Estate Tax

One tax element overlooked in the negotiations over the “fiscal cliff” is how Congress and the President will resolve the future of the estate tax. The Wall Street Journal reports that several Democratic senators from conservative states will not embrace President Obama’s plan to raise the estate tax.  Under current law, the estate tax exemption amount will be lowered to $1 million with a 55% tax rate starting January 2013. President Obama proposes to return the estate tax exemption amount to $3.5 million with a 45% rate, the same terms as 2009.

Senator LandrieuSenator Mary Landrieu of Louisiana, Max Baucus of Montana, and Mark Pryor of Arkansas said they would prefer not to raise the estate tax.  This week, Ms. Landrieu took a very strong position by stating that she would oppose any deficit-reduction package that raises the estate tax. One common element among Landrieu, Baucus, and Pryor is their party affiliation, another more important aspect is that all three are up for re-election in 2014.  The three are diverging from the Democratic party’s position to endorse a position likely favored by their conservative constituents.

Republican lawmakers continue to support estate tax repeal altogether.  At the very least, the Republican leaders expect a continuation of the Bush-era tax cuts which would maintain the estate tax exemption at $5 million and a 35% tax rate.  Under the current policy, the Tax Policy Center estimates that $161 billion of tax revenue will be generated over the next 10 years.  Under President Obama’s proposal, $276 billion would be raised.  Considering the highly-charged political climate, we may not have a resolution to the future of the estate tax in the near future.

Prime Time for Planning

As we have previously posted here and here, this is a golden age for transferring wealth.  The combination of depressed asset values, historically low interest rates, and hefty gift tax exemption make this the ideal time to distribute wealth to lower generations.

This recent Wall Street Journal article lists several strategies to take advantage of this opportune time to transfer wealth:  http://goo.gl/jGUqq.  As we noted in our post back in February, GRATs and valuation discounts are your allies in transferring wealth.  Both of these techniques have been examined by Congress as tax “loopholes ” that may be closed in the future.  As always, the message remains to act now while the tax laws and current economic climate are unusually favorable. We can only be sure that this offer lasts through 2012.