In the news, there has been a lot of talk about the impending "fiscal cliff," and if Congress and the 
administration can't strike a deal, starting tomorrow, January 1, there will be spending cuts and tax increases because of this cliff. These changes have the potential to greatly impact many families, especially in terms of estate planning.
In the new year, the federal estate tax and gift tax exemptions will drop from their current level of $5.12 million to $1 million. This means that if your estate values over $1 million, only the first million dollars will be exempt from tax, leaving the rest subject to tax rates that will also be increasing. In 2012, the maximum tax rate was 35 percent; under current law it will be raised to 55%. Tax rates have not been that high since 2001, and the exemption level was last at $1 million in 2003.
These two changes will all of a sudden cause quite a few people to worry about estate planning who weren't worried before. Families with estates under $1 million can still relax, and those with estates valuing over $5.12 have likely already structured their wills to protect from estate taxes. However, estates totaling between $1 million and $5.12 million are probably not ready for these changes.
There are several different techniques available to get out of the direct line of fire of the new estate tax laws. Establishing trusts and using different insurance methods are two, but there are many others available. The best plan of action would be to seek counsel from an estate planning attorney who knows all the available options and can establish the plan most suited for your needs. While it's not too late to take action, moving quickly will best protect your family and the legacy you leave behind in the new year.
Unfortunately, most action taken now will likely prove to be unnecessary in the future, but how soon in the future is unknown. Exemptions and tax rates have changed 9 times since the start of the century, and because most congressmen have estates larger than $1 million and will want to protect themselves from the high rates, it is likely that the exemption amount will raise to around $3 million. However, the specifics of these changes and how soon they will come into effect are unknown at this time, and with so much uncertainty surrounding them, it is best to take action and protect your family as soon as possible.