After months of bitter campaigning, Democrats and Republicans in Congress finally seem to agree on something: closing tax loopholes.
The idea is appealing as a way to reduce the deficit and avoid the fiscal cliff by increasing revenue without actually increasing tax rates. What’s more, as the prospect of “closing tax loopholes” gains traction in both parties, it becomes increasingly more likely to be a feature of any deal that might be reached.
Which is why you should consider what the phrase “closing tax loopholes” (more accurately “reducing tax expenditures“) means for your estate planning prospects in 2013 and beyond.
“Closing tax loopholes” means potentially saying goodbye to proven planning favorites for reducing your taxable estate like discounts, short-term grantor-retained annuity trusts (GRATs) and charitable deductions.
So it’s better to take full advantage of the estate and gift tax laws we currently have rather than wait and see what happens.
The reason being that while nobody can assess how likely we are to lose those aforementioned estate planning methods, nobody expects the current gift tax, estate tax, and generation-skipping tax (GST) rates to maintain.
The current $5 million gift tax exemption ($10 million if married) allows you to transfer huge amounts out of your taxable estate at only a 35-percent rate – the same thresholds as the estate and generation-skipping taxes. For now.
Between President Obama – who believes the election gave him a mandate on tax policy – pushing for a $3.5 million ($7 million if married) gift tax exemption with a 45-percent tax rate and the fiscal cliff’s automatic $1 million gift exemption and 55-percent tax rate, the current advantages seem to be living on borrowed time.
If you factor in the uncertain future of grantor-retained annuity trusts and the possible caps on charitable deductions, it’s not hard to see why 2012 is the time to plan your estate.
As always, good luck and good hunting.
The Fisher Law Office is renowned for its experience in estate planning, probate administration, asset protection, and business law. Annapolis attorney Randall D. Fisher has practiced for over 20 years, maintains the highest peer review rating for ethics (AV Preeminent) by Martindale-Hubbell, and is a sucker for long walks on the fairways.
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