Estate-Tax Changes Would Affect More Than the Super-Rich
It’s hardly the fiscal cliff, but estate taxes are set to face their own day of reckoning next year. The current rules allow estates of up to $5.12 million to avoid all estate taxes, and that level can be effectively doubled for a couple. Large estates that do face taxes must pay a levy of 35 percent, which is low by estate-tax standards. Gift taxes have also been relaxed.
Unless Congress takes action, the $5.12 million exclusion will fall to $1 million effective January 1. And that 35-percent tax rate will jump to 55 percent. Financial advisers have been urging their wealthier clients to seriously consider using the current gift and tax rules to transfer assets to heirs this year. Given the complexity of preparing holdings for transfer, especially illiquid assets such as property and private business equity, time is running short for such tactics.
Estate taxes are often lost in the shuffle over trillion-dollar deficits and the expiration of the Bush-era tax cuts. Besides, the prospect of forcing wealthy people to pay more taxes is not exactly unpopular these days.
However, according to an analysis by LIMRA, an insurance marketing firm, the less-generous estate rules would potentially affect far more than the one-percenters. LIMRA looked at the Federal Reserve’s recent report on consumer finances in 2010. While only 4.4 percent of households had financial assets exceeding $1 million, estates also include the values of primary residences, private businesses, and, in some cases, life insurance. When these assets are included, that 4.4 percent rises to 12.5 percent—an eighth of all U.S. households.