Possible Tax Changes and Capital Gains and Estate Taxes Require Planning.
Top rates may go to 39.6% from 35% on the Federal Level, and for some States like California, the top rate may be about 10%, making a total tax on the uppermost part of income at about 50%. Also of note is a possible change in the capital gains tax from 15% at the federal level (plus state tax) to 20% at the Federal Level plus state tax. These are driven in part by economic reasons such as the need to lower the federal debt as well as ideological issues such as asking wealthier folks who may have seen the biggest advances in income and net worth contribute a bit more and placing those who make their income in buying and selling stocks and properties who are taxed at less than half the rate on such capital gains to rates closer to the folks who are taxed from their work as employees or taxed on profits from their business. On the other hand their will surely be arguments made by Wall Street and the largest investors that lower capital gains rates will continue to encourage investment into business. Regardless of the outcome, this much is certain, when it comes to taxes, we can bet there will be changes and periodic review of one’s estate plans is a must.
Please note also that exemptions for federal estate tax will $1 million in 2013, from $5.12 million in this year and there are other important changes regarding exemptions between married couples. Again, this assumes the government takes no action. It is noteworthy that
President Obama’s new budget for 2012 allows $3.5 million estate tax exemption. But a 45% tax on assets over the exemption amount (its 35% this year, but historically it has been about 50%). Note for a married couple both of which have equal ownership of their property, 3.5 million is really a 7 million dollar exemption, since on the first death the person only owned half of the 7 million dollar estate.
FYI by way of background, the historic tax on large estates was never considered a “death tax” but was designed to prevent the rise of new aristocracies and the accumulation of wealth by inheritance in a few families.
Again, putting aside all of the debates about what is or is not fair, it is imperative that your estate be reviewed every year to make certain you, your spouse, and children will receive the most they can, since there are often simple planning tools and devices that will help avoid unnecessary taxes at the time when your family may need the most income.