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Estate-tax change would affect 12.3 million households, research finds

This news story was published on September 27, 2012.
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By Matthew Sturdevant, The Hartford Courant –

HARTFORD, Conn. — An additional 12.3 million households in the U.S. would have a potential tax liability if the Bush-era estate tax rates expire as scheduled on Dec. 31, according to research released Tuesday by the life-insurance trade group LIMRA of Windsor, Conn.

The current estate tax means that about 2.4 million of the wealthiest U.S. households face a potential tax liability at death, but if the current law expires at the end of the year, 14.7 million households could face an estate tax, LIMRA reports.

At issue is the ongoing debate by members of Congress about the future of all tax rates. The federal estate tax is a one-time tax on real estate, life insurance, trusts, annuities, business interests, cash, securities and other assets transferred through a person’s will at the time of his or her death, usually to children or other family members.

The vast majority of Americans would still be exempt from an estate tax even if it reverts back to higher rates. The higher rates, if the current rate expires, would affect about 12.5 percent of U.S. households. The current rate affects about 2 percent of households.

The current rate exempts the first $5 million in assets, and the rest is subject to a tax rate up to 35 percent. If the law expires and Congress doesn’t act to extend it, or to modify the changes scheduled for Dec. 31, the exemption would drop to the first $1 million in assets and the rest could be taxed up to 55 percent.

Some in Congress have mentioned a possible compromise plan of exempting the first $3.5 million and taxing up to 45 percent for assets beyond that.

The $1 million threshold is the total of all assets — such as the total of a $450,000 house and $550,000 in retirement savings, ownership of a business, stocks, cash, secondary property and other assets.

If the current estate tax law is extended, 2.4 million of the wealthiest U.S. households would have a potential estate tax liability. At 35 percent, the average estate tax would be $2.4 million.

If the rate expires, the 14.7 million households facing a potential estate tax liability would have an average tax of $1.4 million at death.

LIMRA is not proposing a particular rate, but the trade group is advocating for some stability in the tax code.

“The uncertainty that has surrounded our estate tax laws has made it impossible for Americans to plan for a reasonable transition of their assets to the ones they love and to charity for the greater good,” said Robert Kerzner, president and CEO of LIMRA, LOMA and LL Global.

“Until we have long-term clarity on what the law will be, American families and small businesses will be challenged to make the prudent decisions to ensure their beneficiaries are protected,” Kerzner said.

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