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SUMMARY OF FEDERAL ESTATE AND GIFT TAX LAW CHANGES SCHEDULED TO BECOME EFFECTIVE ON JANUARY 1, 2013 In approximately four months, and unless Congress changes the current law, the federal estate and tax rates will change drastically. Washington state already has the highest state estate tax regime of any state in the country. Soon, it will be a major problem for Washington estates with valuations of property in excess of $1,000,000. Not only what we normally consider to be assets, but also such things as life insurance, and other forms of property will be included in the computation. Generally, estate taxes are due within nine (9) months of death, and the liquidity issues surrounding the dramatic increases in estate taxation can present us with difficult problems forcing the sale of illiquid assets in order to meet tax obligations upon a death. In 1997, the estate tax exemption, or amount you could will to heirs tax free, was $600,000. Once you exceeded that estate tax exemption, the tax rate could approach 55 percent. In 2001 the Economic Growth Tax Relief Reconciliation Act (“ERTA”) was enacted and the estate tax exemption amount and tax rates were liberalized. By 2009 the exemption amount was $3.5 million and the tax rate for inheritances of more than that amount was 45 percent. There ensued a time in which the estate tax and rates were subject to change, included a short period when the estate tax was not in effect during 2010, which Congress corrected. Currently, the exemption rate is set at $5.12 million with a maximum tax rate of 35 percent. This being an election year, Congress is not expected to pay any attention to the “fiscal cliff” which includes the implementation of higher estate taxes and a $2.5 million reduction in the federal estate tax exemption. If Congress fails to act, as anticipated, when the current tax law goes out of effect after December 2012, the estate tax rate will go back to the previously effective (prior to 2001) $1.0 million estate tax exemption and a 55 percent tax rate beginning at the first dollar of the taxable estate above the exemption amount. Estate planners are involved with the need to address these issues with clients. I would be happy to discuss your own estate planning and ways and means to address the tax issues presented by the current estate tax law in the larger context of estate planning goals for you and your family. First Post

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© Peter Lewicki 2012