Saved from the Fiscal Cliff!

Welcome back. Hope you all had a wonderful holiday and wishing you a happy, healthy and successful year(s) to come!

Looking back a 2012, a lot of uncertainty was in the air. The world was supposed to end twice, there was supposed to be an asteroid hitting earth and destroying it and of course the united states “falling off” the fiscal cliff.

Now that 2012 has come to pass, we can all breathe a little easier and wish for a wonderful 2013.

One key point in the debate of the new policy set forth to avoid the fiscal cliff- well at least for now, was what to do with the Federal estate Tax. Leave it at $5,000,000 ($10MM for married couples) or drop it down to possibly the pre 2009 number of $1million ($2million for couples.) and bring it back to a tax rate of 55%?

Luckily for a lot of American’s the new law passed by congress keeps the exemption where it is and just have a slight increase in tax rate up to 40% from the previous 35%.

Over the past two years a lot of estate planning and gifting took place in order to be in a good position just in case the numbers had changed. Now that they are staying at the same levels what does this mean?

Well first off, on one hand, a lot of small business owners, middle income Americans and their families are very happy with this outcome. For many individuals having their estates under the $5 million exemption and not having an estate tax is a sigh of relief. Now their small businesses and hard earned money will not be in jeopardy once they are gone. It also means the federal government is going to have to find additional was to bring in revenue, other than the slight tax increase on the wealthy families earning over $450,000 a year.

On the other hand, many Americans are not happy with one source of revenue for the federal government, the increase on payroll tax. Millions of Americans starting Jan 1 2013 will have lighter wallets as the payroll tax, which funds social security that many believe they will never see, will jump from 4.2% to 6.2%. In already a shaky economy where people are careful with how they spend their money, can this potentially slow down the economy’s growth? Although many agree that the increase won’t completely alter their lifestyles, it will cause them to be more frugal and cut out some of their usual entertainment expenses, which consequently can have a hit on businesses nationwide. For some Americans who are already on a tight budget, it can even come down to whether or not they can pay certain bills like utilities.

Of course now more than ever there is a need to revisit your financial and estate plans. With the uncertainty and concern of the estate tax dropping back to $1million and at a rate of 55%, many Americans took a safe bet “wait and see” approach regarding their life insurance policies. , Now that the exemption will stay at $5MM there may no longer be a need to cover their estate taxes. If your estate falls under the exemption allowance, your Life insurance policies taken out may no longer be needed and can be a viable candidate for a life settlement.