My estimated gross estate will be at or above the current federal exemption threshold. How is this tax law expected to change in the near future?
While it is always considered a wise idea to prepare an estate plan with an eye on the federal exemption, this figure is constantly increasing, decreasing, or being (temporarily) eliminated altogether. Currently, the individual estate tax exemption is $5.43 million, whereas a married couple can defer estate tax liability for a total exemption of $10,860,000 upon the death of the second spouse. However, legislation making its way through Congress could mean the ultimate death of the death tax, creating a number of alternative planning tools for high-net worth testators seeking to properly dispose of assets and provide for loved ones.
Death Tax Repeal Act of 2015
In April, 2015, the United States House of Representatives voted 240-179 to repeal the estate tax all together. The measure, known as the Death Tax Repeal Act of 2015, was introduced on February 26, 2015 by Rep. Kevin Brady (R-TX) and works to amend the Internal Revenue Code by repealing both the estate tax and the generation-skipping transfer taxes levied upon any estate created on or subsequent to the date the Act is executed.
The proposal contains two exceptions, however, including (i) distributions from such trust before the death of a surviving spouse made more than 10 years after the enactment date of this Act, and; (ii) assets remaining in such trust upon the death of the surviving spouse.
Moreover, the Act addresses the federal gift tax rates, and would lower the top rate to 35%. Also, transfers in trust are still considered a taxable gift unless the trust is drafted as wholly-owned by the donor or the donor’s spouse.
While the Act was met with substantial Republican support in the House, it has yet to meet its fate in the Senate. According to Congressional insiders, Democrats promise a filibuster of the Act, and the President is expected to veto any attempt to do away with the estate tax.
In 2013, only one out of every 700 estates – or 0.1% – was required to pay the estate tax. Industry experts expect that level to rise once the data from 2014 is compiled, but only to approximately 0.2% of all estates.
In many cases, exposure to estate tax liability can be significantly reduced with proper planning. For more information, contact Orange County estate planning attorney Brian Chew by calling 949-347-5256 today.