Unless changes are made, the federal estate tax will affect a much higher portion of Americans in 2013.
People who die in 2013 with estates in excess of $1 million may be subject to a federal estate tax. This may come as a surprise to many people, particularly given that 2011 estates were generally not subject to federal estate tax unless they were at or over $5 million and 2012 estates will generally not be subject to federal estate tax unless they exceed $5.12 million.
In addition to the exemption amount, the estate tax rate will also increase dramatically in 2013. Currently, the maximum estate tax rate is 35%. It will rise to 55% for taxable estates over $3 million and even higher for estates in the $10 million+ range.
You think that these taxes don’t matter because most people don’t have in excess of $1 million? Think again. If you fail to plan (or do so improperly), your estate may pay taxes that could have been avoided. For instance, if life insurance becomes a part of your estate, $1 million starts to quickly become attainable. In addition, many baby boomers have 401K’s that have been growing for 30+ years and made millionaires out of many middle-class Americans.
Here’s the bottom line. No one knows what the future holds regarding estate taxes. With budget shortfalls, the federal government will certainly continue to require tax dollars in one form or another. To make sure that taxes are minimized for your estate, give AlerStallings a call.