James F. McDonough
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Fiscal Cliff Deal Has Various Estate Tax Implications
Author: James F. McDonough
Date: January 9, 2013
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With the fiscal cliff avoided and new capital gains and estate tax laws implemented by the federal government, changes are abound for taxpayers in all earning ranges, though the wealthiest earners will see arguably the most substantial losses from the legislation passage.
Due to the passage of the American Taxpayer Relief Act (ATRA), high-net earners will see their dividends and capital gains taxes rise from 15 to 20 percent beginning this year. Moreover, while the law will keep the federal estate tax exemption at $5 million, the top tax rate of 35 percent will jump to 40 percent.
Though the estate tax is likely to affect many high-earners and business owners, a finance expert indicated ATRA will ultimately help the overwhelming majority of Americans.
“You could say this eliminates the estate tax for 99 percent of the population, though I’ve seen figures that say 99.7 or 99.8,” former Internal Revenue Service inspector Richard A. Behrendt told the New York Times.
He added that in terms of policy, the estate tax increase was implemented for a small segment of high-earning Americans – those inside the top 1 percent of earning nationwide. Trusts and other tax vehicles can also further reduce their liabilities.
One concern another finance expert, Carol G. Kroch, a managing director for wealth and philanthropic planning at Wilmington Trust, has regarding the passage of ATRA is that some high-net earners may avoid some financial planning ideas due to the tax law changes. However, she noted many of these individuals “can still create that pool of wealth” via trusts, despite the estate tax increase.
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