Fiscal cliff- retroactive revision after passage?
If worst-case scenario occurs, and we go over fiscal cliff…and someone dies soon after with net worth well over the $1Mil threshold, what is likelihood- in your opinion- of congress retroactively applying more lenient rates on that estate if a compromise is later reached at a higher threshold ($3 mil?)- ie. applying rates from Jan 1, 2013-
As I understand it, they wil not or cannot apply a higher rate retroactively- as it “didn’t” for those who died during the “no estate tax window” a few years back, but can do so for lower rate?
We met with our estate lawyer a few weeks ago, and she acknowledged possibility, but obviously was unwilling to state her opinion with any degree of certainty.
Thanks.
Permalink Submitted by Alan Spross on Thu, 2012-11-29 18:27
It’s hard to be certain with the current governmental dysfunction.
However, it is probably safe to bet that certain options will be made available for those who pass early in 2013 if the unified credit drops to 1mm temporarily. As you mentioned, no one expected the estate tax to disappear in 2010 and options were provided then to either use the most favorable of the no estate tax or the basis adjustment provisions that prevailed through 2009.
I would not panic in December if it appears that no deal is on the table and do something that needs to be redone next year when some sort of compromise is highly likely. A compromise might set the credit at 3.5mm or so, but it is not going down to 1mm.
Estate tax provisions need to be stable for at least 20 years at a time. If there is a scheduled increase or decrease included along the way that is known to everyone a few years in advance, those provisions can be dealt with in an estate plan that will not need frequent revision. Even the 2010 compromise is inefficient for everyone, increases potential liability for planners, increases exposure for taxpayers and even results in added costs and inefficiency in the IRS.
Making tax policy retroactively is ludicrous enough, but estate taxes in particular need to be addressed with period of long term stability. The changes we are seeing now every other year should not occur in intervals less than 20 years. Estate planning should not be handled like year to year income tax planning. Washington does realize that the way taxes and budgets are being handled now is dysfuntional, but in prior situations there has been some fairness accorded to taxpayers who get victimized, so I WOULD expect some fairness or leniency for estates created under these conditions.
Permalink Submitted by philip berens on Thu, 2012-11-29 20:38
Great, thanks Alan.