Surprise.. Surprise… The US Govt may be changing the rules in very short order to fill their coffers.

President Barack Obama’s recently released FY 2014 proposed budget contains a number of estate, gift, and generation-skipping transfer (GST) tax proposals. The most far-reaching would permanently return the estate, gift, and GST tax regimes to the 2009 rules, starting in 2018. This would mean a 45% top tax rate (currently 40% rate) and a $3.5 million exemption (currently $5,340,000) for estate and GST tax and a $1 million exemption for gift taxes (currently $5,340,000), and neither exemption would be indexed for inflation.

While a proposed budget isn’t law we would expect taxes on the “wealthy” to be a big easy target for potential future changes.  As such, if you have an estate (including the value of life insurance proceeds) that is north of $7MM you need to sit up and pay attention.

The following are the area’s of concern:

  1. An estate of $10.6MM would be looking at a $1,656,000 increase in their death tax under this proposed regulation.
  2. As estate between $7MM and $10.6MM now needs to look at planning for tax efficient wealth transfer, which currently is protected under the laws.
  3. The bigger item is the decoupling of the gift tax & estate tax exemptions, which would limit the ability to do lifetime gifts without tax.  This may be the biggest change in our opinion, as it severely limits some wealth transfer strategies.

 

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