It has been said that the only thing a person can count on is death and taxes, both of which greatly impact estate planning professionals. However, in the last several years, while death has remained a certainty, taxes have been another story.
In 2001, then-President George Bush ushered into law a series of tax cuts, including a progressive increase in the amount of assets an individual could own at death without having to pay estate taxes. In 2009, that amount topped out at $3.5 million per person. But in 2010, the estate tax was eliminated for one year before the applicable credit amount would reduce to $1 million per person in 2011. Congress eventually stepped in at the end of 2010 to revise the Bush tax cuts, allowing for a two year adjustment in the estate tax law so that each person has $5 million in assets before incurring an estate tax. That amount adjusts for inflation in 2012 to $5,120,000. At this point in time, the applicable exclusion amount is scheduled to go back to $1 million per person on January 1, 2013 unless Congress once again turns to this issue.
While it seems unlikely that Congress will address the estate tax during a Presidential election year, some move toward estate tax certainty has begun. On November 17, 2011, Representative Jim McDermott (D., Wash.), a senior member of the House Ways and Means Committee, introduced the "Sensible Estate Tax Act of 2011" (HR 3467). In addition to attempting to close some estate tax loopholes, the bill proposes to take the applicable exclusion amount to $1 million per person (although that amount would be indexed for inflation beginning in 2000) and impose a maximum marginal estate tax rate of 55%. The bill is cosponsored by Congressman Charles Rangel (D, NY) and has been referred to the House Ways and Means Committee for consideration of moving it to the full House for deliberation. No doubt several more proposals will be put forth in the coming years before a final estate tax law is signed into law.
Despite the uncertainty in the estate tax law, clients should not avoid putting an estate plan in place. Wealthy clients have a significant opportunity to transfer assets to subsequent generations without incurring gift or estate taxes. The $5.12 million applicable exclusion amount can be used during one's lifetime. A married couple will be able to transfer $10,240,000 in assets without gift or estate tax impact. Since it is unclear how long this unprecedented opportunity may last, it's worth discussing and considering. Furthermore, while an estate tax in any form is part of the Internal Revenue Code, it is prudent to plan as best as possible to maximize estate tax savings, even it updates to the plan may be required later.
For estates of any size, the non-tax reasons for estate planning tend to remain the same: Naming guardians for minor children, avoiding a public and protracted probate action, having control over the disposition of assets, and planning for incapacity. These considerations provide a great incentive to complete an estate plan, particularly for those with wishes that may not be obvious. The cost of completing an estate plan tailored to a family's needs is far less than the costs associated with going without a comprehensive and well-considered plan.