Tags: estate | taxes | fiscal | cliff

Estate Taxes Occupy Sharp Ledge on Fiscal Cliff

Wednesday, 21 Nov 2012 10:29 AM

By Dan Weil

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Among the automatic tax increases that will begin Jan. 1 if the government takes no action concerning the fiscal cliff are several applying to estates.

For example, the exemption on estate and lifetime-gift taxes would decrease to $1 million from $5 million currently, and a lot of people will get snared in the net if that change takes place.

“An average American can have $1 million, or $2 million or even $3 million and not be wealthy,” Morgan Stanley wealth adviser Kathy Roeser tells CNBC.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

At present only about 0.13 percent of Americans who die have large enough estates to owe estate taxes. But the possible changes would boost that number to 2 percent, Roberton Williams, a senior fellow at the Tax Policy Center, tells The New York Times.

For that reason, Roeser and other financial planners expect that the estate tax and the lifetime gift exemption will be reduced only to around $3 million.

Another change would be an increase in the maximum tax rate on estates and lifetime gifts to a whopping 55 percent from 35 percent.

To be sure, people with a good accountant have plenty of ways to reduce their estate taxes. For example, grantor retained annuity trusts allow donors to transfer large sums of money in ways that officially don’t even top the $13,500 tax-free limit on gifts each year.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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