(2011)Those who hoped for federal estate tax certainty in their Christmas stockings were disappointed again this year.

Congress handed out a two-year exemption that excludes most taxpayers from estate tax, but long-term stability in the rates remained as elusive as reindeer tracks on
your roof.

For people who die in 2011 and 2012, only those with estates exceeding $5 million will pay estate tax, with a top rate of 35 percent. But in 2013, those rates are once again set to expire and fall to $1 million, with a top rate of 55%.

Plan ahead for 2013

Even if you’re not one of the fraction of Americans with estates over $5 million (or $10 million for married couples), you should still plan your estate with 2013 in mind.

Remember, the new rates will expire. Two years can go by quickly, and few people revise their estate plans any more often than every 10 years or so. So if you have an estate worth more than $1 million, including life insurance proceeds, you should have an estate plan that will work as well in 2013 as it does in 2011.

Keep in mind, too, that even if your estate is worth somewhat less than $1 million now, it could grow to over $1 million if your investments do well. This is particularly true for taxpayers with large amounts in tax-deferred retirement plans, such as 401(k) plans and individual retirement accounts.

Other reasons to plan

One drawback of high exemption rates is that people with more modest estates can get lulled into complacency.

Even if you won’t be affected by the federal estate tax, plenty of reasons remain to plan your estate, including:

  • Making plans to pay the least allowable in capital gains tax
    or Pennsylvania inheritance tax
  • Establishing a trust for special circumstances, such as a second marriage or a special needs child
  • Avoiding probate, if desired
  • Coordinating your estate plan with accounts that have beneficiary designations
    Protecting assets from loss due to long term care costs

If you would like to discuss your situation, call us!


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