According to reports, the estate tax rate may increase next year from the current maximum rate of 35 percent to 55 percent. This means that more than half of taxable estates -- which is currently valued at more than $5 million -- will go to the federal government. This may mean that it is time for the elderly living in Boston to begin planning accordingly.
Tax planning is something that every aging individual should do. If a person chooses not to, the taxes may be stripped from the estate when beneficiaries expect certain assets to be bequeathed to them. Instead of receiving your house, a loved one may have to sell it to afford the taxes.
While many states -- currently, more than half -- do not have estate taxes, some do. Some experts believe this is chasing the wealthy out of certain states, such as Tennessee, and into others that do not have estate taxes. In Tennessee, there is not only an estate tax, but also a gift tax. Both of these can reach as high as 9.5 percent, cutting deeply into the estates of many when combined with federal estate taxes.
This means that an individual with an estate valued at $10 million may have to pay $950,000 in taxes when they pass away, and that's only to the state. To avoid this tax, it can be as simple as moving. This allows the wealthy to pass on property, businesses and other assets without the worry of being hit by a state-level estate tax, as long as those belongings are not located in a state that has such a tax.
This flight of the rich is likely what has caused 29 of the 50 states to eliminate their estate taxes. Massachusetts also has an estate tax.
Currently, the federal estate tax rate is set at 35 percent. If legislators do not step in, that will spike to 55 percent on Jan. 1, 2013. According to reports, President Obama would like to see that rate be capped at 45 percent. Whatever the rate may be, it is time to start creating a plan to account for the costs.
Source: The Wall Street Journal, "Death Tax Defying," Mar. 23, 2012