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When You Thought It Was Safe to Go Back in the Water - Estate Tax Revisions

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Jonathan Kinney
BKK Wills, Trusts & Estates Newsletter
August 2013

In January 2013, when President Obama and Congress compromised on changes in the estate tax area most commentators thought the changes (part of the American Taxpayer Relief Act of 2012) meant that further changes to estate and gift taxes were off the table, at least for a couple years.  Apparently, this is not the case.

Additional tax revisions were proposed in the administration’s 2014 budget.  The current estate tax law (passed in January 2013) provides that each individual has a $5.25 million “exemption” from estate, gift or generation skipping tax.  This means that a married couple can effectively shelter $10.5 million with the amounts indexed for inflation going forward after 2013.  As part of the estate tax compromise, the estate tax rate was increased to 40 percent on amounts above these exemption limits.

The administration’s 2014 budget is proposing to drop the exemption to $3.5 million for estate and generation skipping taxes and reduce the gift tax exclusion to $1 million.  This proposal also contemplates raising the top estate tax rate to 45 percent and the “exemption” would no longer be indexed for inflation.

While it's unlikely that Congress, as it's presently comprised, would acquiesce to these changes, it does provide some insight as to future proposals that may be made to cut exemptions and raise estate tax rates.

There are number of other tax proposals contained in the 2014 budget, primarily those  intended to raise taxes on the wealthy and upper middle class.  These include:

Again, we don't anticipate that all of these proposals will become law but this at least provides a look at what may be on the table.