How Does the Fiscal Cliff Affect You?

When you turn on the news you will hear a lot of talk about the fiscal cliff. So far the conversation has revolved around the top wage earners and entitlement reform. However, there is a lot more at play. Currently, estate tax laws reduce the rate Americans pay on inheritances and increase the threshold amount under which estates are exempt from the tax. The tax was briefly repealed altogether in 2010, before it was reenacted in a 2010 compromise which set the estate tax rate at 35% for estates valued at more than $5 million ($10 million for a couple), indexed to inflation If we go over the cliff ie no Congressional action, the estate tax will revert to its pre-2001 form January 1st. Under that version of the law, estates valued over $1 million were subject to an estate tax on a graduated basis from 37% to 55%, and a 5% surtax was imposed on some estates valued at over $10 million, which would eliminate the benefit of the graduated rate for very large estates. Once Congress and the President conclude the fiscal cliff debates, it will be a good idea to sit down with your estate planner to discuss how the new laws affect you and your family.