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Estate Tax Uncertainty

The rules and regulations regarding Federal Estate Taxes are scheduled to revert to a $ 1,000,000.00 estate tax exemption on January 1, 2013 (down from the current $5,000,000.00 + ) unless Congress takes action. This means that—if Congress takes no action-- all estates with a taxable value over $ 1,000,000.00 will be subject to Federal estate taxes with a starting rate of 55% of assets over the $1,000,000.00 threshold.  Inheritances by qualified spouses are exempt from this tax, but if your taxable estate is over $ 1,000,000.00 it is usually unwise to leave everything outright to your spouse, as your spouse’s estate later will pay estate tax on the whole amount. It is usually preferable to take advantage of the available exemption for each estate.  You can gain the advantage of the exemption for each estate by establishing Trusts which place some assets into a Trust for the benefit of your spouse, which will allow your spouse some rights to income and some rights to principal--while still taking advantage of the exemption, providing your Wills, Trusts and beneficiary designations are properly drafted.  Many competing rules and laws are in play here, so documents must be drafted precisely…..  New York currently taxes estates with a taxable value of over $ 1,000,000.00. This tax is at lower rates than the federal tax, but is a separate estate tax.

It is likely that when you read or listen to the news over coming months, you will hear about the “Bush Tax Cuts” expiring at the end of this year, which will result in increases in income and estate taxes. The good news on the estate tax front is that the topic is in the news and Congress knows that tax increases are very unpopular. The dynamic in Washington is that the President wants to extend the income and estate tax cuts for most people, but wants those with higher incomes to pay more in income taxes. The Republicans want all tax cuts extended for everyone: That is where the battle lines have been drawn.  The bottom line is that if your taxable estate exceeds $ 1,000,000.00 (including real estate, bank accounts, stocks, bonds, business interests and life insurance and  everything else you own)  you need to have a plan in place that will work under all circumstances, including if the federal estate tax threshold falls back to $ 1,000,000.00.

PURSUANT TO IRS REGULATIONS, ANY TAX ADVICE CONTAINED IN THIS DOCUMENT IS NOT INTENDED TO BE USED, AND CANNOT BE USED, FOR PURPOSES OF AVOIDING PENALTIES IMPOSED BY THE INTERNAL REVENUE CODE OR PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTER OR TRANSACTION DISCUSSED HEREIN.

 

 

 
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Licensed in New York State
    The Witecki Law Office
(518) 372-2827
8 South Church Street
Schenectady, NY 12305
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