Each year the White House releases a proposed budget for the following year, and as you may imagine, there is a great deal of ground to cover when you are talking about that much spending. As a result, the hefty volume is referred to as the “blue book.”
The budget proposal for 2016 has been released, and it includes an expansion to the federal estate tax. If this budget was to be adopted, many more families would be exposed to the death levy.
To understand the proposal, you have to walk down memory lane with regard to the estate tax parameters. The estate tax was repealed in 2010 due to provisions contained within the Bush era tax cuts. At the end of that year, a legislative measure was passed, and it established the estate tax parameters for 2011 and 2012.
A $5 million exclusion was installed at that time. The exclusion is the amount that can be transferred before the estate tax becomes a factor.
This exclusion extended through 2012, but there was an adjustment to account for inflation that brought the estate tax exclusion up to $5.12 million for that calendar year.
The legislation that put these parameters in place was set to expire at the end of 2012. In December of that year, the Taxpayer Relief Act of 2012 was passed. This made the existing estate tax parameters “permanent,” but it allowed for annual inflation adjustments to be added to the estate tax exclusion.
The reason why we put the word permanent in quotes is because nothing is really permanent when it comes to taxation. New laws can change existing laws, even if the existing laws are not going to expire on their own.
Now we can fast-forward to the present. The 2016 budget proposal that has been floated by the White House would reduce the federal estate tax exclusion to just $3.5 million. This was the figure that was in place back in 2009.
When you consider the fact that your life insurance policies and your home are included when you are calculating the taxable value of your estate, you can see that you would not necessarily have to be a tycoon to be exposed to the federal estate tax if this expansion was to be adopted.
We should emphasize the fact that this is just a proposal; it is not a foregone conclusion. However, it does demonstrate why you should always be aware of the current lay of the land when it comes to the estate tax, because things can and do change.
Tax Efficiency Consultation
There are steps that you can take to reduce your exposure if your estate is in taxable territory. If you would like to discuss these strategies with a licensed professional, contact us through this page to set up a free consultation: Indianapolis IN Estate Planning Attorneys.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
- What Is the Most Important Document in My Estate Plan? - September 22, 2021
- 3 Documents That Should Be in Your Estate Plan - September 16, 2021
- How to Guard Your Child’s Inheritance - September 14, 2021
