President Obama submitted his 2012 Budget Proposal on February 14. As expected, the Administration is calling for higher taxes to help reduce the deficit. On the income tax side, rates would rise for taxpayers with adjusted gross incomes exceeding $200,000, or $250,000 for a married couple. Indirectly, income taxes would also rise by limiting itemized deductions.
Turning to the estate side, Obama proposes a return to 2009 law starting in 2013. There would be a $3.5 million exemption amount upon death and a $1 million lifetime gift exemption. Currently, taxpayers can protect $5 million either upon death or with lifetime gifting. Thus, high net worth taxpayers wishing to protect as much as possible from estate tax should act now while a $5 million exemption applies for lifetime gifts (as well as favorable low interest rates and relatively low asset values). There are additional reasons to act now: The Administration is again targeting advanced planning techniques, such as GRATS, intra-family discounting, and generation skipping planning.
One bit of good news: The Obama plan would extend "portability" of estate and gift exemptions, meaning a surviving spouse can use the unused gift and estate tax exemptions of his or her predeceased spouse. Portability can help solve estate tax problems caused when a married couple fails to position their assets properly prior to the first death.
Unfortunately, the last few years has established that the estate law is impossible to predict as Congress and the President, regardless of party, continue to change the rules, making planning fluid and difficult.