Estate Tax Conundrum

Now that the we no longer need to follow the histrionics of Congress in its discussion of the Debt Ceiling, it is time to attempt to plan for the “sunset” provision in the current Estate and Gift tax.   More than 10 years ago the Estate and Gift Tax exemptions and rates were adjusted, so that in 2009 the exemption increased to $3.5 million and the minimum rate was reduced to 45% and for persons dying in 2010, the taxes were reduced to zero.  In late 2010, to avoid the “sunset ” provision that would have reduced the exemption from $3.5 million to $1 million and increased the tax rate from 45% to 55%, the Congress “kicked the can down the road” increasing the exemption to$5 million and the minimum tax rate to 35% , effective only until 2013.  Then, unless Congress does something, and based upon recent history, such may be doubtful, the exemptions will be reduced to$1 million and the minimum tax rate increased to 45%.

Now is the time to think about making plans to minimize the impact of future gift and estate taxes using the few vehicles available: present large gifts, a credit shelter trust or other approach that may be appropriate to specific individuals.  Only through the use of imaginative legal and accounting techniques can one hope to minimize the impact of anticipated tax changes.