Potential Scenarios for the Future of the Estate Tax

The future of the federal estate tax likely depends on the outcome of the next election. Four potential scenarios for the future of the estate tax are below:

1. If Congress takes no action, the estate tax exemption and estate tax rate will reduce to $1 million and 55%, respectively, on January 1, 2013.  Congressman McDermott introduced the Sensible Estate Tax of 2011 on November 17, 2012. The bill would reduce the exemption to $1 million with a top tax rate of 55% and retain unification and portability.
2. Congress could extend the current law into 2013 and beyond if neither party has complete control over tax legislation.  If this happens, Congress would index the estate tax law for inflation above the $5,120,000 that went into effect in 2012. This scenario keeps the 35% tax rate and leaves unification and portability intact.
3. Congress may pass a an estate tax compromise that lowers the estate tax exemption and increases the tax rate if Democrats win control. Based on the president’s proposed 2013 budget, the compromise would likely reflect 2009 numbers.
4. Congress may repeal the federal estate tax, bringing back the carry-over basis, if Republicans win control of tax legislation. Some observers predict that Republicans may even trade higher income tax rates for the repeal of the estate tax. 

See Julius Giarmarco, 4 Potential Scenarios for the Future of the Estate Tax, Producers Web, Jan. 17, 2012. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.