Newspapers are focusing on the income tax implications of the fiscal cliff which has an immediate impact on many individuals. But if the legislature fails to reach an agreement, the federal estate, gift, and generation skipping taxes would be deeply effected.
The current federal estate tax exemption amount of 5 million dollars (adjusted to 5.12 million) is set to expire at the end of 2012 and revert back to a 1 million dollar exemption amount in 2013. The tax rate would also change from the current top rate of 35 percent to a top rate of 55 percent.
No one knows if the legislature will be able to reach an agreement. Some have suggested a 3.5 million dollar exemption amount with a top tax rate of 45 percent and others have suggested continuing with the 5 million dollar exemption amount and 35 percent top tax rate. If the legislature fails to act before the end of 2012, it is possible that they could still change the federal estate tax retroactively in 2013.
No matter what happens to the federal estate tax, the Massachusetts estate tax is not set to change. The Massachusetts estate tax exemption amount is currently 1 million dollars and is not expected to change in the near future.