Estate Tax Law Changes Possible

As the President and Congress inched closer to a “grand bargain,” NAELA and its elder law attorney clients remain concerned with the uncertainty of the estate tax laws. At December 28, 2012, meetings between President Obama and Speaker Boehner have revealed little about what may happen with the current estate tax rates and what this may mean for assisting older adults who seek legal counsel and documents to provide planning and some certainty. At this point no one knows whether the future of the estate tax will be determined during these fiscal cliff negotiations or next year sometime during the 113th Congress’s tax reform debate or a possible debt limit negotiation.
The federal estate tax is only levied against an individual’s assets after his or her death when the assets total a certain amount. The federal estate tax only affects estates valued over the established federal estate tax exemption. Currently, the federal estate tax exemption is set at $5.12 million and only the portion of the estate valued over this amount will be subject to the tax, at a possible maximum rate of 35 percent. If Congress fails to act before year’s end, the exemption will revert to $1 million and the top estate tax rate will be 55 percent in 2013. In the past, President Obama has proposed that the estate tax should include a $3.5 million exemption with a maximum rate of 45 percent, but Speaker Boehner recommends extending the current rates. In previous discussions, many Republicans and some Democrats supported eliminating the estate tax altogether.

Congress’s lack of action has created so much uncertainty about the estate tax rates, some individuals have scrambled to make gifts before 2012 year-end in order to decrease the value of the estate and avoid a potentially higher estate tax rate in 2013. It has been reported that some wealthy Americans who were quite ill havestated that they wanted to be taken off of life support before December 31st in order to preserve more of their assets for their families or charities.

Clarity on the future of the estate tax is essential for many attorneys to plan effectively for their clients. Some NAELA members, including Hyman Darling, an Elder Law and estate planning attorney, member of the NAELA Board of Directors, and chair of the NAELA Tax Section, believe that “Congress needs to provide both the taxpayers and their planners a decisive and permanent plan that will allow attorneys to advise their clients with some definitive direction.” Congress’s failure to provide such a long-term permanent plan led to the temporary elimination of the estate tax in 2010.  This allowed for billionaires like the late George Steinbrenner, owner of the New York Yankees, to pass away in 2010 without paying federal estate taxes.

The estate tax is a significant source of revenue for the federal government. Had Steinbrenner passed away in 2011 when the estate tax was reinstituted, his estate could have paid an estimated $600 million in estate taxes. Extending the current estate tax plan of a 35 percent rate and a $5.12 million exemption could raise $161 billion in revenue over 10 years. The federal government could collect $532 billion over the next decade in estate tax revenue if the estate tax reverts to the pre-2001 levels of a $1 million exemption and a rate of 55 percent.

Stephen Silverberg, a past president of NAELA and an Elder Law and estate planning attorney, believes that the estate tax is a revenue source that “can be used to maintain benefit programs necessary to NAELA members’ clients.” Even Warren Buffet agrees with this view that higher estate tax rates can prevent cuts to entitlement programs that protect this nation’s most vulnerable populations. In the past, NAELA has similarly proposed that the estate tax further protect the vulnerable by serving as a means to finance long-term care.