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Estate Tax Always in a State of Flux

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After years of saying the estate tax is going to change, I’ve decided that I should just tell you it will always be changing. I don’t think the Congress has the ability to provide us with any stability in this area. We simply have to plan for change!

As of today, each individual has a $5 million exemption from Federal estate, gift and generation skipping taxes. This takes most, but not all, people out of the system. Further, the Federal exemption is now “portable” between spouses, which makes it easier to use the exemption for either spouse. This makes planning easier and will eventually lead to the simplification of many estate planning documents.


However, as the law stands today, the exemption for Federal purposes will decrease to $1 million per person on January 1, 2013. Given the highly political nature of this issue, I can see no assurance that this significant tax increase will not go into effect. It is possible that later in 2013 there will be legislation passed to alter some of the increases set in current law, but this depends on the election results, economic conditions and lots of other factors.


The other thing to consider in this regard is the Illinois exemption. Late last year Illinois acted to increase the Illinois exemption from $2 million per person to $3.5 million in 2012 and $4 million in 2013 and beyond. Since the Illinois tax is roughly 10% of values in excess of the exemption, this can be a real tax burden, which must be taken into account in planning larger estates. As several of my clients know, this has lead me to urge them to consider changing their State of residence to Florida, which has no state level estate tax of any kind. While the increased Illinois exemptions reduce the number of estates subject to Illinois estate tax, it is still worth looking at planning for the State level tax for larger estates.