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Millions More Could Face Estate Tax If Rates Expire Dec. 31, Trade Group Says

An additional 12.3 million U.S. households would have a potential tax liability if the Bush-era estate tax cuts are allowed to expire as scheduled Dec. 31, the life-insurance trade group LIMRA of Windsor said Tuesday.

Under the current estate tax, about 2.4 million of the wealthiest U.S. households face a potential tax liability at death. That number would rise to 14.7 million if the current law expires, LIMRA reports.

The federal estate tax is a one-time tax on real estate, life insurance, trusts, annuities, business interests, cash, securities and other assets transferred through a person's will at the time of his or her death, usually to children or other family members.

LIMRA is not proposing a particular rate, but the trade group is advocating for some stability in the tax code.

"The uncertainty that has surrounded our estate tax laws has made it impossible for Americans to plan for a reasonable transition of their assets to the ones they love and to charity for the greater good," said Robert Kerzner, president and CEO of LIMRA, LOMA and LL Global.

"Until we have long-term clarity on what the law will be, American families and small businesses will be challenged to make the prudent decisions to ensure their beneficiaries are protected," Kerzner said.

The LIMRA report did not include state figures.

The vast majority of Americans would still be exempt from an estate tax even if it reverts to higher rates, because the values of their estates do not meet the threshold for the tax to kick in. The higher rates, if the current rate expires, would affect about 12.5 percent of U.S. households. The current rate affects about 2 percent of households.

The current rate exempts the first $5 million in assets. After that, assets are subject to a tax rate up to 35 percent.

If the law expires Dec. 31 and Congress doesn't act to extend or modify it, the exemption would drop to the first $1 million in assets and the rest could be taxed up to 55 percent.

Some in Congress have mentioned a possible compromise plan of exempting the first $3.5 million and taxing up to 45 percent for assets beyond that.

The $1 million threshold is the total of all assets — such as the total of a $450,000 house and $550,000 in retirement savings, ownership of a business, stocks, cash, secondary property and other assets.

If the current estate tax rates are extended, 2.4 million of the wealthiest U.S. households would have a potential estate tax liability — and, at 35 percent, the average estate tax would be $2.4 million, LIMRA's research shows.

If the rate expires, the 14.7 million households facing a potential estate tax liability would have an average tax of $1.4 million at death, the trade group says.

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