Estate and Gift Taxes in an election year – What will the future hold?

Many of the tax provisions enacted by Congress at the end of 2010 are set to expire on December 31, 2012.  Currently, there is a $5 million estate tax exemption and a tax rate of 35% on any amount over $5 million.  The gift tax exemption amount is currently $5 million and the generation skipping transfer (“GST”) tax exemption is also $5 million.  If Congress does not act, the estate tax, gift tax, and GST tax exemptions will each be reduced to $1 million.  President Obama and Mitt Romney have both published their proposals for the future of the estate tax.  The President’s budget proposal would restore exemption amounts and rates to the 2009 levels.  Mitt Romney’s Believe in America Plan only addresses the estate tax, which would be eliminated.  Below is a comparison of the current law, the President’s proposal and Mitt Romney’s proposal.

Applicable Exclusion Amounts

 

Year

Tax Current Law President Obama’s budget proposal Romney’s Believe in America plan
2012
Estate Tax $5.12 million*
Gift Tax $5.12 million*
GST Tax $5.12 million*
2013 and beyond
Estate Tax $1 million $3.5 million Eliminated
Gift Tax $1 million $1 million ?
GST Tax $1.36 million* $3.5 million ?

Tax Rates

 

Year

Tax Current Law President Obama’s budget proposal Romney’s Believe in America plan
2012
Estate Tax 35%
Gift Tax 35%
GST Tax 35%
2013 and beyond
Estate Tax 55% 45% None
Gift Tax 55% 45% ?
GST Tax 55% 45% ?

*Indexed for inflation