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Status report on federal estate tax legislation

7-19-2012 - Citizens and estate planners alike have been on a decade-long roller coaster ride with respect to the federal estate tax. The current unified federal estate tax and gift tax exemption is $5.12 million per individual, with a top tax rate of 35%. Current legislation also permits a surviving spouse to utilize that portion of the lifetime exemption unused by the deceased spouse (the so-called "portability provision"). Details on the current estate tax here.

This current law is slated to expire on Dec. 31, 2012. Without congressional action, on Jan. 1, 2013 the estate tax will revert to its levels before the Bush tax cuts of 2001:  

1. Estate tax: Lifetime exemption of $1 million per person; top tax rate of 55%.
2. Gift tax:  Lifetime gift tax exclusion of $1 million per person; top tax rate of 55%.
3. No portability.

According to The Hill's money and finance blog of 7/17/12, Republicans and Democrats are readying their respective proposals. Republicans by and large would like to see the estate tax repealed entirely, but given the unlikelihood of this occurring, are proposing extension of the current estate tax provisions. Many Democratics, in lieu of a return to the estate tax law of 2000, are proposing a rollback to the 2009 law: a $3.5million exemption with a 45% top tax rate.

The bipartisan Tax Policy Center has analyzed how these competing proposals would play out in 2013. It projects that the Republican plan, if passed, would bring in revenue from about 4,000 estates in the year 2013. The Democratic plan would bring in revenue from about 7,000 estates. And if Congress fails to agree on new legislation and the estate tax returns to its year 2000 level, about 52,500 estates would be impacted.

Check the "Legal Updates" section of our website for the latest news on this important issue. We will also provide updates in our monthly Estate Planning/Elder Law E-newsletters, which you may subscribe to here.

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