For a little over a month now, the nation has been watching in trepidation as the fiscal cliff looms ever closer, but for some people here in Texas, and perhaps other states, they could be wondering what the concern is really all about.
During George W. Bush’s presidency, we watched as estate tax rates dropped to a mere 35 percent as the amount of money allowed for gift tax exemptions rose to a staggering $5.12 million. But come January 1 that could all change if Congress can’t come to a consensus over what the new limits will be in 2013.
If Congress doesn’t reach a decision, gift tax exemptions will roll back to $1 million while the estate tax rate will rise to 55 percent. And although this has relatively no affect on the average American, those who have accumulated large enough estates are becoming increasingly worried that their estate planning measures may need to be considerably altered so as to shelter their estates from future changes.
Many financial experts point out that it’s not too late to change your estate plans; in fact, if you are among the few whose estate exceeds $1 million, you are highly encouraged to do so before the start of the New Year. By restructuring your estates into trusts, insurance and other techniques, you may be able to prevent your beneficiaries from seeing a considerable loss in their inheritance when it comes time to collect. Some have even suggested that giving assets as gifts now instead of at the time of your death could greatly reduce the amount of gift tax that is paid out this year, which could provide more asset protection in the long run.
Some critics have argued that there is the likelihood that Congress will not allow the fiscal cliff to occur, pointing out that if any of them were even remotely successful in their business careers then they would find themselves in the $1 million to $5.12 million range. But even if these critics are wrong, it’s always better to plan for the worst and hope for the best in situations such as this.
Source: The Bradenton Herald, “Fiscal cliff causes estate planning conundrum,” Tom Breiter, Dec. 11, 2012