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Estate and inheritance tax issues simmering on legislative back burner

May 10, 2012

You can learn a lot about your neighbors just by walking around the area.

Take the kids who live seven doors down from us. Their driveway chalk art prompted a speculative haiku:

Hopscotch? Much too tame.
These kids are C.S.I. fans
or quite macabre.

Neighbor kids chalk outlines in driveway2 cropped

OK, maybe it's me who's the television crime show aficionado. I'm sure (hope!) the children had much less ominous reasons for drawing chalk outlines of themselves.

But the line artistry also got me thinking about that inevitable meeting of death and taxes. Yeah, that kind of A to B to taxes thinking tends to happen in what passes for the real life of a tax geek.

2012 estate tax amounts: As I'm sure you remember, thanks to Congressional infighting and ineptitude the federal estate tax expired in 2010.

The House and Senate were able to get their acts together just enough to grudgingly agree on an estate tax resurrection for 2011 through 2012 along with a whole slew of other tax laws.

Currently, the federal estate tax is pretty generous.

Estates valued up to $5.12 million (thanks to an inflation adjustment) are not subject to the tax. If the total assets exceed that amount, the tax rate is 35 percent.

The estate tax extension also increased the lifetime gift-tax exemption from $1 million to $5.12 million per individual in 2012 inflation-adjusted dollars ($10.24 million this year from the previous $2 million for married couples).

And speaking of couples, there's also a nice portability provision in effect. During 2012, if one spouse dies without using up his or her federal estate tax exemption, the unused portion may be transferred to the surviving spouse.

Impending 2013 changes: But all this will change unless Congress deals with the estate tax, along with the ordinary income tax rates and investment tax rates that are getting much more attention in this presidential election year.

Without Capitol Hill action and presidential signature, on Jan. 1, 2013, the lowest 10 percent individual income tax rate could disappear and the top personal tax rate could go to 39.6 percent.

As for investments, the 15 percent long-term capital gains and qualified dividend rate would go back to 20 percent and the zero tax rate for lower income investors would return to 10 percent.

And on that first day of January 2013, the estate tax laws also would change for the worse for decedents and heirs.

The estate exclusion amount then would revert to $1 million and the tax rate of estates in excess of that would jump to 55 percent.

State estate, inheritance taxes also in place: Meanwhile, many state estate and inheritance taxes are still being collected.

With an estate tax, the assets left after death are taxed. An inheritance tax, on the other hand, is collected from the heirs based on what they receive.

Estate_inheritance_tax_map_010112_TaxFoundation Click the map for a larger view.
Info also is in table format at the Tax Foundation.

Estate, heir issues at "Downton:" Estate and inheritance laws have gotten some popular culture spotlight thanks to the British television series, aired here across the pond as part of PBS' Masterpiece Classics, "Downton Abbey."

Leiha Macauley, a trust and estate administration attorney and partner in the Boston office of Day Pitney LLP, writes in The Boston Globe that the travails of Lord Grantham and his extended family have made her a rock star.

"Not quite the cocktail-party cachet of, say, a CEO with a hot start-up heading for an IPO, or even of a ticketholder to the next Yo-Yo Ma concert. Instead I’m getting button-holed in social settings simply because I can explain details of a seminal storyline of the smash BBC hit," says the estate tax lawyer.

I'll leave it to Mccauley to elaborate on the "Downton Abby" entail, or fee tail as it also is called, and its central role in the fictional Crawley family because of its lack of an immediate male heir to whom the estate could pass.

I'm just going to be thankful that the popularity of recent TV shows and movies (remember George Clooney's estate issues in "The Descendants") have made being a tax geek a bit more acceptable and fun.

You also might find these items of interest:

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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