You have probably heard talk of the looming fiscal cliff that if left unresolved, economists warn, could push the country back into a recession. Well the deadline for action (January 1) is quickly approaching. At that point the Bush tax cuts expire, trillion dollars in automatic spending cuts are triggered and several complex tax and spending issues will become intractable. Despite this, after months of talks, Democrats and Republicans have left Washington until after the November elections without having made any significant progress resolving their main sticking points.
Lawmakers seem convinced that no decisions on taxes, spending and entitlement reform can be made until after voters choose who will run the country for the next four years. However, some lawmakers are skeptical that a deal can be reached even after the election. Sen. Ben Nelson, D-Nebraska, one of several moderate senators retiring at the end of this term, is quoted by CNN.com as saying as much, “I’m not optimistic (a solution) will happen because this is a kick-the-can-down-the-road Congress,” he said. “The best you’re going to get is to kick it down the road one more time.”
On the other side of the aisle, Sen. John McCain, R-Arizona, said the only thing that could change to make Congress act is “if the markets start to react.” (Full CNN article here)
Estate Tax Implications
Of particular concern for estate planners and many of my clients is the looming reduction of the Federal Estate Tax exemption. Right now that exemption is set at $5 million, meaning that estates under $5M pay no federal estate tax while those over $5M are taxed 55% on anything over the exemption amount.
However, the federal exemption is set to be reduced to $1 million, meaning all those with estates, including home equity, investments and life insurance payouts, will be taxed at the federal rate on everything over $1M. For Massachusetts residents, estates of $1M or more are already taxed at the state level, up to 16% on the entire amount. The threat of having the federal and state exemptions both at $1M raises a real possibility that the bulk of Massachusetts estates, without proper planning, will go to the government through estate taxes.
Planning ahead is of paramount importance in reducing or eliminating your estate tax liability. Any estate approaching or surpassing the $1M mark in Massachusetts can benefit substantially from reviewing your estate with a qualified estate planning attorney. Call the Heritage Law Center today for a free consultation on how you can protect what youâ€™ve worked hard to achieve.