Throughout this year, many estate planning meetings have been kicked off by clients telling me that since Congress permanently set the federal estate tax exemption at $5 million, indexed for inflation ($5.25 million in 2013), there was no need to talk about estate taxes.
I always point out, first, that the Massachusetts estate tax exemption remains at $1 million with no anticipated change. Then I explain that, while I don’t expect it to change, “permanent” in this case does not mean that it can’t change. What Congress did in early 2013 was to remove any expiration date from the estate tax laws. For the first time in over 10 years, we had no concerns about “sunsetting” provisions or countdowns. However, Congress has the power to change the laws that it makes.
Earlier this month, President Obama presented his 2014 budget . In this budget, there is a proposal that, beginning in 2018, the federal estate tax exemption drop to $3.5 million, only $1 million of which could be used during lifetime, and neither figure would be indexed to inflation. Further, the proposal calls for an increase in the estate tax rates, with the top rate rising from 40% to 45%. A number of estate tax planning and minimization tools are targeted in the proposal as well.
A proposal is a long way from a law, however, the existence of a proposal to change a law passed only 4 months ago is a reminder that estate planning must be revisited regularly to insure that your plan remains appropriate based upon changing laws and changing circumstances.