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Estate tax blues

December 10, 2012

The next few weeks could be an important time for those trying to make important strategic decisions about how to allocate their assets and protect their estate. Time is running out on the federal tax exemption on estates and gifts: on January 1st, 2013, the exemption level is scheduled to be rolled back from $5.12 million to $1 million. Unfortunately, the news gets worse. Not only is the exemption expected to drop by 80%, but the tax rate is going from 35% to 55%. It’s also no longer portable. In other words, couples no longer have the protection of double-counting (when one spouse dies, their ceiling goes with them—so all assets and all tax liability lies with the survivor).

While the estate tax exemption has fluctuated significantly in the past—in 2010, for example, there was a one-year period where there was essentially no estate tax—Congress may not act quickly enough to prevent this rollback from taking effect.

As a result, the general consensus among estate planning attorneys and other financial professionals is that the current $5.12 million might be as good as it is going to get for quite some time. There is a sense that families and individuals who have been putting off making planned gifts and estate decisions might want to act quickly while the higher exemption is still valid. And make no mistake, this isn’t just a “rich people” problem. Even the “old-school” middle-class couple who has lived frugally and saved wisely could easily break the $1 million mark and have to pay 55% tax on any assets beyond that number. If you do decide to move forward, be sure to act quickly: the complexities of estate planning can take some time to navigate, and 2013 is right around the corner.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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