I did a post earlier on tax changes that would affect small businesses this next year and in the future. My last post was mainly on income taxes and the severe reduction of bonus depreciation and the Section 179 deduction. I will focus this post on tax changes affecting estate planning.

The estate tax is based on wealth, or net value, as opposed to income, so it works the following way. In general when a person passes away, one of the duties the successors in interest must do for the Estate is to inventory property. The inventory is then valued as of the date of death. If the net value of the Estate exceeded a certain amount, (the federal estate tax exemption amount) it was subject to taxes. As part of the Bush Tax cuts, the federal estate tax exemption amount went from $640,000 to up to $3,500,000 before it was phased out completely in 2010. In 2011 the federal estate tax exemption was set to return to $1,000,000, but Congress and the President reached an agreement that set the exemption at $5,000,000 with a top rate of 35% for 2011 and 2012.

In 2013, the federal estate tax exemption is set to return to $1,000,000 per individual. The top tax rate will be 55% for the largest estates. This means that estates of people dying on January 1, 2013 may have to pay up to 20% more in taxes than if the person had died on December 31, 2012 instead. The good news is that the estate tax is the easiest tax to plan for, so you should take steps now if your family’s weath is more than $1,000,000.
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In Oklahoma, the state estate tax was repealed effective January 1, 2010. It is set to stay repealed because any tax increase basically has to pass by constitutional refernedum now, and it doesn’t seem likely that will happen. However, there is a chance that the federal estate tax could change so drastically that Oklahoma may re-impose its state death tax based on the federal credit system. We will have to watch to see what develops with this.

If you have questions on planning your estate or if you are worried how death taxes will affect you, then please call to set up a complimentary appointment. In tax planning, an ounce of prevention is worth a pound of cure.