Friday, December 28, 2012
Estate tax could jump suddenly unless Congress acts in 2013
NBC News has a wicked story from CNBC, by John Carrey, “Death and (estate) taxes sometimes go together”, link here.
The issue is that, without action by Congress, a death in 2013 will lead to the old inheritance tax threshold of $1 million and a top rate of 55%.
It could matter to heirs whether a death certificate says 11:59 PM Dec. 31, 2012, or 12:01 AM Jan. 1. For deaths in 2012, the exemption was 5.12 million.
But Congress has until Dec. 31, 2013 (not 2012) to fix this problem. It doesn’t have to agree to anything right now for the Fiscal Cliff. But families or heirs could be kept in suspense.
My own belief is that, in policy matters, changes should occur gradually and incrementally to avoid sudden catastrophic discontinuities which can throw people under the bus. Congress’s practice of defining tables of threshold amounts for some years and stopping, rather than automatically indexing them, causes this kind of crisis. A similar problem exists with the AMT (Alternative Minimum Tax).
Imagine a Hitchcock movie based on this problem.