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Thursday, November 15, 2012

The Fiscal Cliff and Estate Taxes

 

The "Fiscal Cliff". As many of you know, on January 1, 2013 the Bush era tax cuts expire. Now that the presidential election is behind us, all eyes are watching what will occur. The Fiscal Cliff has far reaching and drastic effects on our economy. Today, I will discuss just one of those effects.

On January 1, 2013, the Federal Estate Tax exemption amount is scheduled to be reduced from five million dollars to one million dollars if Congress and the President do not act. What that means in simple terms is if you die and your estate is above one million dollars in value, your estate would owe estate taxes upon your death. And here is the key. With the changes coming, the tax rate on the excess above one million dollars is at 55%. Let me repeat that -- 55%. So if you have a two million dollar esate, your estate will owe taxes on one million dollars, and at a 55% rate that means your estate will owe a tax of $550,000. OUCH!! 

Talk about going over a cliff. Imagine what that would mean for small business owners who may not have a lot of cash on hand, yet have businesses worth in excess of one million dollars. How will the tax be paid? Will the business have to be sold by the heirs just to pay the tax? That is how important these next few weeks are for our Country. Somehow, Congress and the President need to get their act together and figure out a solution. 

Additionally, since the estate tax and gift tax are a unified tax, the excess gift tax amount is also increasing to 55%.

Do I have faith that a solution will be in place by January 1, 2013? No. It is hard to know what the agenda is of all the players. Which is a shame since the agenda of all should be for the financial well being of all of us.

Depending on what happens come January, proper estate planning may become very important for many of us. Trusts, life inurance to help pay the costs of any estate tax owed, etc., will all have to be looked at to see if they should all be part of your estate plan.

It should be very interesting over the next few weeks.

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Many & LoCoco

Attorneys at Law

(504) 483-2332

 

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The Attorneys of Many & LoCoco assist clients throughout parts of Southern Louisiana, including but not limited to New Orleans, Metairie, Mandeville, Convington, Gretna, Arabi, Marrero, Westwego, Harvey, Chalmette, Kenner, and the Parishes of Orleans, Jefferson, St. Tammany, and St. Bernard, LA.



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